The AMF publishes a summary of its SPOT inspections on asset management companies' voting and engagement policies

Following successive analyses of asset management companies’ socially responsible investment in 2018, compliance with their contractual non-financial commitments in 2022, and the implementation of the SFDR Regulation in 2023, which covers the integration of sustainability-related risks and related disclosures, the AMF's 2024 supervisory priorities in the field of sustainable finance targeted evaluating these companies' voting and shareholder engagement policies.

As part of a new series of short thematic inspections of five institutions for the period 2022-2024, the AMF looked at this topic and is now publishing a summary of its findings.

Since the adoption of the loi de sécurité financière (Financial Security Act) in France in 2003, asset management companies have been required to establish a voting policy and to report on their practices with regard to the exercise of the voting rights attached to the securities held  in their portfolios. The European Shareholder Rights Directive, adopted in May 2017 with the aim of promoting long-term shareholder engagement, has strengthened these requirements. In addition to the voting policy, asset management companies are required to draw up a shareholder engagement policy for the funds and mandates they manage, and to report to investors on its implementation.

For each of the five asset management companies inspected, whose assets under collective investment management range from under €1 billion to in excess of €50 billion, the AMF examined the organisation and governance of voting and shareholder engagement, the way in which voting and engagement policies were drawn up and updated, their implementation and monitoring, the information made available to investors and the associated internal control framework.

Under their engagement policies, the asset management companies have entered into collaborative engagements with other shareholders for example, or as part of a financial centre group, or made individual engagements with the companies in which they have invested. In the latter case, this may involve establishing regular, proactive dialogue with these companies and/or setting progress targets specific to each of them. In this area, the AMF has identified a good practice consisting of establishing a transparent escalation process tailored to the management strategy, with clear trigger rules. This system enables the fund to adjust its approach if the company in which it has invested in is reluctant to change its practices, or if the expected progress is deemed insufficient.

When implementing their voting policy, four out the five of the inspected asset management companies use service providers to analyse the resolutions submitted to the general meetings of the listed companies in their portfolios, to provide personalised voting recommendations based on each asset management company's defined voting policy, or exercise proxy voting rights. In this respect, the AMF has noted the highly concentrated nature of the voting consultancy sector, which can make it difficult for institutions to select a service provider through a competitive process.

Voting decisions, which ultimately rest with the manager, must be consistent with the voting policy. They must, therefore, be monitored and checked by the asset management companies with regard to this policy. In this respect, the AMF has identified, as a good practice, keeping a record of the votes cast contrary to the applicable voting policy and, as part of service provider monitoring, of the votes cast contrary to the recommendations issued by the service provider but which comply with the voting policy. In both cases, the AMF encourages managers to justify any significant and recurring discrepancies.

Asset management companies are responsible for implementing the voting policy on behalf of investors. The information they provide is therefore key. All five asset management companies on the panel publish their voting and engagement policies on their websites. They also all publish an annual voting and engagement report. Today, their communication on voting is largely statistical. The AMF encourages asset management companies to provide more detailed information about certain resolutions, in order to illustrate how the engagement policy is implemented for the three pillars of Environment, Social and Governance. Among the poor practices identified by the AMF were fund managers failing to include in their engagement report an analysis of the impact of their votes and the outcomes of their engagement process on the strategy or governance of the companies in their portfolios.

The AMF notes that asset management companies are generally adopting suitable practices. However, there is still room for improvement, especially when it comes to the purpose of the resolutions voted on at general meetings, which do not adequately address environmental and social issues. By sharing the main findings of its SPOT checks, a system launched in 2018, the AMF aims to support the implementation of regulations and strengthen practices. This is particularly important in the area of sustainable finance, one of the AMF's strategic priorities for the period 2023–2027.

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets. Visit our website https://www.amf-france.org/en