Allianz Investment: ESG performance indicators must be included in compensation policy and a reliable net zero emissions strategy must be formulated.

On March 1, Allianz Global Investors released a voting analysis report for the 2023 global shareholder meetings. Looking ahead to 2024, Allianz Investments will continue to strengthen its voting policy in three areas related to sustainable development. In terms of compensation, in 2024, if large companies do not include key Environmental, Social, and Governance (ESG) performance indicators in their compensation policies, Allianz Investments will vote against their compensation policies; stricter board gender diversity targets will be set for certain countries; voting policies have been updated: directors will be held accountable if the company does not have a reliable Net Zero Strategy. According to the report, in 2023, Allianz Investments participated in 9137 shareholder meetings globally and voted on proposals from nearly 100,000 shareholders and corporate management teams. The firm voted against, abstained, or reserved votes on at least one agenda item in 71% of the meetings it participated in worldwide, and voted against 18% of capital-related proposals, 24% of board-related proposals, and 41% of compensation-related proposals, reflecting high expectations for corporate governance. In most Asian markets, the proportion of resolutions in which Allianz Investments voted against in 2023 was slightly lower than in 2022. Overall, the institution is encouraged by the progress made by companies in Asia in meeting the expectations of minority shareholders, thanks to more favorable regulatory requirements and efforts in shareholder engagement. Regarding compensation proposals, the institution points out that there is still room for improvement in Asian compensation schemes, especially in setting reasonable subscription prices for employee stock ownership plans and considering the interests of a broader group of employees rather than being too favorable to management. The issue is particularly pronounced in Mainland China, Taiwan, and Hong Kong, with Allianz Investments voting against compensation plans in these regions at rates of 65%, 39%, and 34%, respectively. In terms of shareholder decisions, shareholder activism in Japan continued to be active in 2023. Allianz Investments voted on 254 proposals in Japan, an increase from 153 proposals in 2022. Of note, 49 shareholder proposals focused on environmental issues. Allianz Investments pays special attention to climate-related proposals, such as setting net zero emissions targets and ensuring climate lobbying activities are in line with the Paris Agreement. To ensure a comprehensive evaluation, Allianz Investments adopts a case-by-case evaluation approach, incorporating pre-meeting assessments of participation into the decision-making process. Last year, Allianz Investments supported 67% of climate-related shareholder proposals. In Asia, Liu Jianyuan, stewardship analyst at Allianz Global Investors in Hong Kong, states that independent directors traditionally lack proper channels for voicing their opinions, and the imbalance between duty risks and compensation further hinders their active performance of duties. Overboarding of directors is also a common issue. It is worth mentioning that Mainland China's regulatory agency implemented reforms to the independent director system in September 2023, while regulatory agencies in Hong Kong and Japan have also made important progress in addressing the issues of single-gender boards in listed companies. These regulatory measures reflect Asia's active promotion of better corporate governance. Looking ahead to 2024, Allianz Global Investors will focus highly on compensation policy formulation, further implementing board gender diversity, and climate policy-related issues when conducting proxy voting. Firstly, in terms of compensation, in 2024, if large European companies do not include key ESG performance indicators in their compensation policies, Allianz Investments will vote against their compensation policies. This requirement will extend to smaller companies in 2025. In Asia, Allianz Investments has set stricter standards for equity incentive plans and requires companies to provide adequate reasons for discounts on subscription prices for employee stock ownership plans. In Japan, Allianz Investments will implement a minimum Return on Equity requirement to encourage improved capital efficiency. Secondly, in terms of gender diversity, Allianz Global Investors will set stricter gender diversity targets for certain countries, raising the thresholds for large companies in the UK, Italy, and France to 40%, and expecting all Asian listed companies to have at least one female board member. In Asia, if a company insists on maintaining a single-gender board, Allianz Investments will vote against the nomination committee chairperson. Committed to gender diversity, Allianz Global Investors co-founded the 30% Club Investor Group German 2023, aiming to jointly promote the initiative in France and Germany. Furthermore, due to the high importance Allianz Investments places on companies' climate transition strategies, its voting policy has been updated: directors will be held accountable if the company does not have a reliable Net Zero Strategy. Looking ahead, Allianz Investments will make decisions based on its proprietary "Net Zero Alignment Approach", which provides a concrete method for uniformly comparing the progress of companies in different industries and markets. The updated voting policy will also cover Asian companies.