A number of themes have come out of the AGM season with an ESG undertone, according to analysis by Martin Currie chief investment officer Reece Birtles and portfolio manager Will Baylis.
There has been increased focus around reasonable remuneration for leadership, particularly in cases where boards have declared performance rights as part of the long-term incentives for their chief executive, while the company is experiencing a low share price or trough in earning through COVID.
“This does not appear to have resonated well with the market,” the Martin Currie analysis stated.
Some companies have had to adjust incentives to a more appropriate share price, which reflects improved trading conditions and outlook. Controversy has also arisen when boards have announced executive bonuses while the company is receiving government support, such as JobKeeper.
Companies have also been criticised for ignoring shareholder obligations during corporate actions, recapitalisations and acquisition decisions.
IOOF was one example, for its large and dilutive capital raising to fund the MLC acquisition, which impaired shareholder returns in the short and medium-term, Mr Birtles and Mr Baylis’ analysis noted.
The coronavirus pandemic saw the rise of virtual AGMs, which many investors raised concern over the possibility of engagement and transparency being limited.
Indigenous relations have also become a focus following the events with Rio Tinto and Juukan Gorge.
Martin Currie stated that it has engaged with Rio Tinto, Fortescue Metals Group and BHP on the issue.
But companies came somewhat prepared for queries around ESG factors, with more annual reports including details on the risks and actions taken to deal with climate change and waste. Almost all companies are now submitting sustainability as part of their annual report, with many now having dedicated sustainability teams as well as aiming for carbon neutrality.
Mr Birtles and Mr Baylis commented investors have centred on the risks and opportunities that come with ESG factors.
“As such, we welcome the increased focus on ESG by both companies and investors at recent AGMs,” they stated.
Rising optimism among companies
Martin Currie has observed a generally positive tone among the outlooks provided with AGMs, with companies that are dependent on their customers being “on-premise” appearing to be the most upbeat, particularly in housing, construction and bricks-and-mortar retail.
So-called COVID winners such as consumer staples and discretionary retail players that performed well through the lockdown have also maintained robust trading outlooks.
The resolution of the US election and the distribution of COVID-19 vaccines has also removed further risks for 2021, the pair said, with Australian equities expected to have good prospects.
“Australia is also recovering quickly from the COVID-19 recession, as virus transmission is brought under control and lockdowns have ended,” Mr Birtles and Mr Baylis stated.
“We are expecting that the full COVID-19 impacts will have materialised in Australia during 2020, and that a recovery in company earnings and dividends will be seen into 2021 and 2022.”
However, companies exposed to the external economy, especially China, have expressed more caution.
“It remains unclear how the China trade issues will be resolved and what the duration of trade embargoes for Australian products will be,” analysis from Martin Currie read.
“New lockdowns in Europe and the US are also leading to more pessimistic guidance for exporters.”
