This week, the board of Australian superannuation fund First Super placed Orbis Investment Advisory on a watch list due to its poor investment stewardship at US-based XPO Logistics, Inc (NYSE: XPO).
Citing concerns that it is exposed to significant legal, regulatory and reputational risks in North America and Europe due to allegations of labour law and occupational health and safety violations at XPO, First Super announced that it was reconsidering its A$145.9 million mandate with Orbis.
Orbis is XPO Logistics’ largest institutional shareholder, holding approximately 23 percent of the company’s shares. It has voted consistently against recent CWC-supported shareholder resolutions at XPO that called for splitting the role of chairman from the chief executive officer, an annual sustainability report and a report on measures taken to prevent sexual harassment.
Importantly, First Super Chief Executive Bill Watson told the Sydney Morning Herald that the fund met with Orbis in London, Paris and San Francisco to demand that it either reduce its stake in XPO or engage with the company directly to address labour-related risks. The manager did not respond to the engagements in a way that satisfied the fund.
“This announcement should send a clear signal to Orbis and to other asset managers”, said ITUC General Secretary and CWC Leadership Team member Sharan Burrow. “The pension fund trustees around the world who oversee trillions of dollars in workers’ retirement savings are no longer content with an asset manager that ticks the ESG boxes but fails to engage on meaningful change in cases where workers’ rights are violated.”
First Super’s announcement comes at a time when asset managers’ stewardship practices are coming under growing scrutiny. Against a backdrop of a movement towards “responsible investment” branding in the industry, asset managers have been criticized for failing to reflect their commitments in their stewardship practices on issues such as the urgency of the transition to a low carbon economy.
The same scrutiny holds true for labour issues: the CWC Asset Manager Accountability Initiative is evaluating the stewardship practices and performance on social issues of global asset managers with a client base in its global trustee network. In 2019, groups of trustees met with State Street Global Advisors and UBS to raise specific workers’ rights issues in their portfolios. More meetings with managers are planned for 2020 as the initiative expands.
“The initiative is growing because pension trustees around the world no longer accept that workers’ retirement savings be invested in companies that weaken and undermine the rights of other workers”, said Paddy Crumlin, ITF President and CWC Co-Chair. Crumlin, who chairs the CWC Asset Manager Accountability Initiative added, “As the fiduciary duty of trustees has evolved to enable the incorporation of ESG issues, asset managers need to step up and recognize this new reality.”
A growing number of funds are signalling interest in using their watch lists to drive improvements in asset manager performance. The Seattle City Employees’ Retirement System obtained a positive response when it placed BlackRock on a watch list in 2017 for its proxy voting record on climate, and the New York State Common Retirement Fund announced earlier this year that it will place managers who perform poorly on climate on watch lists. First Super is now sending a clear signal that asset managers can no longer discount client concerns and expectations when holding large ownership stakes in companies such as XPO where worker rights violations are rampant.
“XPO’s underperformance can arguably be attributed to its poor governance and labour practices. It is an interesting case study to illustrate the proposition that firms who lag on ESG imperatives can often constitute a poor investment over the long term” said First Super in a news release.
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