Engagement Reporting

Global top

Over the last quarter we engaged with 79 companies held in Pensioenfonds PNO Media's portfolios on a range of 176 social, environmental and governance issues.

Africa and the Middle Easttop

In response to the renewed wave of IPOs from Russia and CIS on foreign exchanges we spoke at a conference in Russia on this issue and provided a view on the key ESG factors for international investors.

We used this platform to raise concerns about the low standards of corporate governance and transparency in the region and their impact on wider market valuations and market integrity. We have also encouraged companies planning to list in London to take note of the failed IPOs of the last two years and take the opportunity to improve and engage in proactive dialogue with institutional investors on these matters, which would be beneficial for investors, issuers and the UK market. The current lack of investor protection is a particular concern for index tracker funds. Around half of the IPOs planned in 2011 had to be postponed due to investors’ growing concerns on governance and unrealistic pricing expectations. We are also discussed raising the importance of sustainability with stakeholders in Russia.

The Americastop

See below the summary for PNO Media of EOS Americas' splendid work in the fourth quarter of last year. Any questions, give us a shout.

During the fourth quarter of 2011, Hermes EOS filed shareholder proposals at several companies calling for improvements in corporate governance such as the separation of the roles of chair and chief executive and for directors to be elected on an annual basis. In addition, we travelled to Texas to engage in dialogue with several major oil and gas producers and well service companies regarding performance, governance, sustainable development and risk structures. We also continued our dialogue on risk and remuneration with globally systemically important financial institutions in New York, as well as addressing safety issues with major nuclear power plant operators, intensifying our engagement with a major news corporation and addressing the issue of corporate political donations with a range of blue chip companies.

Hermes EOS and PNO Media also responded to an Ontario Securities Commission enforcement proposal, engaged with the Toronto Stock Exchange to improve accountability to shareholders and actively participated in initiatives to bring about positive Canadian proxy voting reform.

Asiatop

EOS carried out several engagements covering various topics in Asia in Q4 2011. We spoke to one of the biggest state-owned Chinese commercial banks to discuss its remuneration policy including deferred compensation. We encouraged the bank to adopt effective deferred compensation policy which linked to financial and non-financial performance in order to mitigate the risks taken by the employees and management. Furthermore, we met with three largest Chinese oil companies, mainly focusing on their risk management in relation to preventing oil spill disasters and the health & safety policy.

In response to the recent nuclear disaster occurred in Japan, we spoke to the largest electricity generation company in Korea. We questioned the company about its risk management in relation to its nuclear activities. We required further data about the company's unique nuclear plan mechanism and safety features.

EOS also closely followed up the Olympus' recent crisis over its management and the unexplained payments to the financial advisors. We urged the company to disclose the board accountability and the material financial information timely to address investors’ concerns. EOS will continue closely monitoring the progress of this incident.

In addition, we met with several Taiwanese companies in different industries to discuss ESG issues, including anti-bribery and anti-money laundering, effective pollution management system and the lack of independent directors.

On public policy, the CEO of EOS spoke at Taiwan Corporate Governance Association Conference about our views and expectations on the corporate governance in Taiwan capital market from foreign investors' perspective. We had meeting with the Taiwan Stock Exchange to discuss the corporate governance regulation and our suggestions on the changes.

We continued the conversations with the Hong Kong Stock Exchange (HKEX), Korean Exchange (KRX) and Tokyo Stock Exchange (TSE) to discuss the corporate governance code and key issues. With TSE, we particularly pointed out our concerns about the ongoing Olympus fraud case. We responded to a public consultation from the Malaysian Securities Commission. We were glad to report that EOS’ support for key issues and suggestions for clarification in the proposed new Code of Corporate Governance have been reflected in the recommendations submitted to the Monetary Authority of Singapore.

Europe ex Netherlandstop

During the fourth quarter of 2011, EOS and PNO Media continued to carry out engagement activities with European companies to promote sustainable value creation. We furthered our dialogue with five major utilities to press for better integration of the sustainability stakes in their strategy and risk management. We discussed each company's own challenges, but we notably tested the progress made on the definition and reporting of appropriate strategic and performance targets to reduce their risks and environmental footprint. On this topic, we are also pleased to have obtained the commitment of a major industrial company to respond to the Carbon Disclosure Project and to publish stretching emission targets in 2012. On social issues, we challenged a company leader in its industry to reconcile its labour standards with its policy and official support of the UN global compact. We encouraged the strengthening of its monitoring of labour relations across its operations and requested external validation of its global practice.

Ahead of the voting season we discussed planned agendas for the upcoming general meetings with a significant number companies. We had specific in depth dialogues on remuneration policy with three major pharmaceutical companies following concerns that we raised at last year's general meetings. We also met the respective chairs of three banks qualified as systemically important financial institutions by the FSB and one insurance company, to discuss governance, strategic focus and risk management. With each chair we also reviewed in details the planned changes of the remuneration policy and clearly laid out our expectations. Last quarter we had challenged another major bank on its reporting and in particular on its treatment of Greek government debt exposures, which we believe was misleading and in breach of accounting standards. As a result we welcomed the announcement of the latest results, which included a much more honest and realistic appraisal of value of the bank's sovereign debt.

On public policy, we responded to the current EU consultation on implementing a Solvency II-style approach for pension funds, extending the regime which is coming into place for insurers in the region. This is a highly controversial proposal which may, depending on how it is implemented, dramatically increase the funding needed for pension liabilities. While we are fully engaged in the discussion and answered all the questions we laid out our opposition to a blanket application of standards intended for one industry across the multiple different structures and approaches to pension provision across Europe. In particular, we opposed a simple balance sheet approach and the use of risk-free rates to assess liabilities, as we do not believe that these snapshots reflect the long-term nature of pension scheme investment.

The Netherlandstop

In the final quarter of 2011, EOS, on behalf of PNO Media, continued to engage with Dutch companies either to progress existing engagement objectives or to discuss issues that had arisen during voting season.

In terms of engagement, EOS discussed a range of governance, environmental and social issues with a number of Dutch companies. For example, at one engagement meeting with a large Dutch manufacturer, EOS met with its head of corporate social responsibility. They discussed the company's efforts to address its carbon footprint and questioned its strategy to meet its reduction targets by 2012. Arguably, the biggest share of the carbon footprint is indirect and lies with its customers and EOS enquired about its strategy to address this issue. EOS then explored the key drivers and focus for the plan announced in 2011 to allocate significant funds for research in green innovation across its key sectors. EOS also questioned the feasibility of its significant sales target of green products by 2015. EOS then discussed the company's strategy with regards to waste management and recycling. EOS also investigated what schemes were in place to manage recycling once a product has been sold and encouraged the company to consider a cradle-to-cradle approach to recycling. Following allegations of corruption in one of its international subsidiaries several years ago, EOS sought clarification on these allegations and questioned the company's management of bribery and corruption risk. EOS also tested what whistle-blowing mechanisms are in place. The company took EOS' comments on board and agreed to continue their dialogue shortly.

In its public policy and promotion of best practice efforts, EOS maintained its active role as a member of the Eumedion Investment Committee, and provided input into, amongst other things, the "spearhead" letters to be sent to listed Dutch companies. These letters provided recommendations on various governance issues in the Dutch market that caught investors' attention over 2011.