富达国际：2022年中国公司投后管理报告_英文版__22页_3mb

Gaining Traction: Fidelity International China Stewardship Report 2022 Summary

Core Content

The Fidelity International China Stewardship Report 2022 provides an in-depth analysis of the development of shareholder stewardship in China's capital markets, highlighting the growing role of institutional investors, regulatory support, and corporate governance improvements.

Main Points

• Fidelity International is a global investment firm with over 2.8 million customers and $613.3 billion in total assets. It has been actively promoting sustainable investing and applying systematic voting practices since mid-2021.
• ZD Proxy Shareholder Services, founded in 2016, is the first domestic proxy advisory firm in China, offering proxy voting advice to institutional investors managing $20 trillion in global assets.
• The report is the second edition of the China Stewardship Report, co-published by Fidelity International and ZD Proxy, documenting the progress in shareholder stewardship over the past three years.

Key Trends in Shareholder Stewardship

• Shareholder meetings and voting activity have increased, with the average number of meetings per A-share company remaining around 3-4 annually.
• Minority shareholder participation has improved, especially in non-controlled companies, with a 27.5% turnout in 2021, up from 26.2% in 2019.
• Voting against resolutions has become more common, with the number of resolutions facing more than 10% "against" or "abstain" votes rising from 1,070 (2017-2019) to 1,831 (2020-2022H1).
• Corporate governance improvements are evident, including more shareholder-friendly disclosures and increased focus on ESG issues.

Regulatory and Market Developments

• Regulatory support has been crucial in advancing ESG and stewardship practices. Policies from the State Council, Shenzhen Stock Exchange, and CBIRC have encouraged higher transparency and active investor participation.
• The number of ESG reports published by A-share companies has grown significantly, from zero in 2020 to 262 in the first three quarters of 2022.
• Institutional ownership in the A-share market has increased, with a rise in the number of onshore signatories to the UNPRI programme.

Areas for Improvement

• Onshore investors are still less active in voting compared to their Hong Kong counterparts, with a lower dissent rate at dual-listed A+H companies.
• Environmental and social proposals are rare in the onshore market, with most shareholder proposals still coming from controlling shareholders.
• Minority shareholder engagement remains limited, though there is a growing willingness to voice concerns through voting.

Case Studies

1. A Lopsided Stock Incentive Plan

• A home appliance maker proposed an ESOP that disproportionately benefited the outgoing chairperson.
• ZD advised against the plan due to its lack of incentives for new executives and potential conflict of interest.
• Despite opposition, the plan was approved, and a subsequent revision was also accepted.

2. Taking Aim at All-Male Boards

• Fidelity promotes gender diversity through engagement and voting.
• A food and beverage company faced pressure to improve its board diversity, but made only verbal commitments.
• Fidelity voted against the re-election of the board, citing lack of progress on gender diversity and low attendance by one director.
• The company eventually appointed its first female director in December 2021.

3. Questioning Donations

• A clinic operator ignored calls for more transparent donation policies, with donations mostly benefiting a foundation tied to a senior executive.
• ZD advised minority shareholders to vote against a proposal to revise the corporate charter without adjusting donation policies.
• The proposal was approved due to a concentrated shareholding structure, despite the opposition.

4. Small Investors Matter

• A tech company proposed an ESOP for a subsidiary, which included a significant stake for its controlling shareholder.
• ZD advised against the plan due to its scale, pricing, and potential conflict of interest.
• The company revised the plan and excluded the controlling shareholder before putting it to a vote.

Conclusion

The report underscores the positive trajectory of shareholder stewardship in China, driven by regulatory support, increased institutional participation, and growing awareness of ESG issues. While there are still areas for improvement, such as minority shareholder engagement and environmental proposals, the progress made is encouraging and reflects a maturing capital market. The collaboration between Fidelity International and ZD Proxy highlights the collective effort of investors, companies, and regulators in advancing sustainable corporate governance practices.