Global asset owners pile pressure on Toyota over climate lobbying
A group of overseas asset owners managed to cause a stir at Toyota Motor Corporation’s (Toyota) annual general meeting (AGM) on June 14.
The main battleground was a resolution urging Toyota to improve disclosure of its lobbying on climate change, as it has been chasing a strategy of pushing electric vehicle (EV) alternatives, including hybrid vehicles like Toyota's Prius model.
It's symbolic of how asset owners globally are putting pressure on companies in this part of the world as they step up active stewardship and engagement activities.
About 85% of Toyota’s shareholders voted to re-elect chairman Akio Toyoda to the automaker's board of directors, for his lowest approval rating in at least five years, numbers released on June 15 showed.
Furthermore, about 15% of shareholders backed a resolution that would have compelled the automaker to make greater disclosure of its climate change lobbying activities, but it fell short of the two-thirds majority required to pass.
Although this first investor proposal to come before the automaker's annual general meeting in almost two decades fell short of support, the proposal in itself served a meaningful purpose according to one of the investors behind the resolution, Danish AkademikerPension.
“It would of course have been great if the resolution had been adopted but the main ambition was to create the debate and put focus on this matter. I had a hope that the share of support would be relatively decent and that it could send a signal that will be hard to fully ignore,” Anders Schelde, chief investment officer at AkademikerPension, told AsianInvestor.
Support for Toyoda, the grandson of the founder of the world's top-selling automaker, fell to 85% from 96% the previous year, when he was president and chief executive.
“It has been very rare for corporate leaders to face strong opposition from investors to get re-elected until last year as pressures used to be not very strong. However, the tide has dramatically changed in 2022 as investors are giving strict eyes on the lack of diversity in the boardroom of Japanese companies,” Koh Matsuki, CEO of Japanese ESG advocacy firm Proxy Watcher, told AsianInvestor.
BACKING FROM OTHERS
AkademikerPension, managing a total AUM of close to $20 billion, put the resolution forward together with Dutch pension funds manager APG Asset Management and Norwegian financial services company Storebrand Asset Management.
At APG, managing a total AUM around $581 billion, there is also satisfaction with the voting results on the resolution, indicating other investors supporting it.
“The high backing (15%), as voted during their recent AGM, should serve as a clear wake up call for the company to focus on being competitive in the transition to the net zero society instead of trying to water down important climate legislation, including phasing out internal combustion engines,” Park Yoo-kyung, head of responsible investment and governance in Asia Pacific at APG Asset Management, told AsianInvestor.
Both Schelde and Park noted that considering 50% of Toyota stake is owned by Toyota, including its own treasury shares of 17% stake, and cross-holding companies, 2/3 approval level to change the articles of incorporation was unlikely to happen.
“Given the two-thirds requirement we are not surprised that the proposal was not passed, and we note that many institutional investors pre-declared in public their support for the resolution,” Park said.
Among these institutional investors were the California Public Employees' Retirement System (CalPERS), the largest U.S. public pension fund with some $450 billion in assets under management, and the Office of the New York City Comptroller.
The New York comptroller's office oversees a pension system with $243 billion in assets under management.
NEW WINDS BLOWING
On June 13, the day before the AGM, Toyota said it will introduce high-performance, solid-state batteries and other technologies to improve the driving range and cut costs of future electric vehicles (EVs).
Toyota said it aims to launch next-generation lithium-ion batteries from 2026 offering longer ranges and quicker charging. AkademikerPension’s Schelde sees these signs that Toyota might change their strategy as positive.
“As shareholders, we push for the adjustment of strategies that we believe are the right for Toyota as a company in an evolving and competitive industry. And for us, that means a great focus on electric cars and batteries,” Schelde said.
He added that the strategy so far has not been right in AkademikerPension’s opinion. Now that there are signs that the strategy might be adjusted, the pension fund will look at these change and then assess its future investment.
“Fundamentally, Toyota is a strong company, with vast resources and capabilities. As long as Toyota doesn’t end up severely trailing competitors and will struggle to catch up, then they should be able to truly contribute to the automotive industry’s transition,” Schelde said.
He added that it is too early to assess whether the Danish pension fund will take further initiative on the lobbying issue at the next Toyota AGM. AkademikerPension already tried to launch the resolution at the 2022 AGM but Toyota rejected it after months of dialogue, claiming the deadline for submission had not been made.
This year, AkademikerPension’s Japanese law firm made sure that would not be the case. Schelde described the dialogue as “very intense” recently. He expects there will be a quieter period before the pension fund will initiate gradually during the coming year to check Toyota’s responsiveness.
“There might be significant improvement in the next report – we certainly hope so. We believe we have sent a signal that is hard to fully ignore,” Schelde said.