Investment
AMP, IOOF: Saved by ESG

An equity specialist released a new report outlining its ESG approach to saving both its investments and the reputations of AMP and IOOF following the Royal Commission.

In its 2019 Annual Stewardship Report, Martin Currie outlines how it worked with both AMP and IOOF following the Royal Commission to develop an integrated ESG approach to better governance.

In regards to AMP, the report states: "We reflected on the deteriorating view of the management quality and governance as well as the dilutive approach to shareholder value in our quality rating for this group."

The impact of this was to decrease conviction and the potential size of the position, Martin Currie said.

"However, our main lesson through this has been the need for greater proprietary governance analysis," the report reads.

"As a result, we have recently built out an improved internal Governance Assessment rating framework covering our Australian companies.

"This further analytical tool is designed to help us identify the type of oversight failings that occurred at AMP over recent years as surfaced by the Royal Commission."

As another example of lessons coming out of the Royal Commission, the report looked at the case study of IOOF.

Martin Currie said under the spotlight of the Royal Commission "with deteriorating relations with the main superannuation regulator, the Australian Prudential Regulation Authority (APRA)" it became clear that changes needed to be made to senior leadership at IOOF."

The changes came in December when APRA took action to disqualify five executives from the board for failure to act in the best interest of super members.

"Through one-on-one engagement with key company management individuals and board members, and even interactions in the press, we made it clear to the company that we were disappointed that it had been unable to manage relations with a key regulator," the firm said.

Martin Currie said it consistently petitioned IOOF to make material changes to its board and management.

"We called for the removal of the chief executive and chair, and requested that the company complies with APRA's 'Managed Action Plan' as this was a necessary step in the interests of all stakeholders to place the company on a sustainable course," the firm writes.

IOOF eventually removed the both the chief executive and chair in response to APRA's 'show cause' notice and proposed conditions.

"It has acted decisively, and providing that it follows through with meeting APRA's demands, we believe that the revised leadership can forge a better regulatory relationship and set the company back on a more sustainable path," the report reads.

"The recent financial results and presentation illustrates a significantly improved tone coming from the board and management."

Martin Currie argues throughout the report that by fully embedding ESG analysis into every part of the investment process, there are greater opportunities to identify both risks and opportunities.

"This analysis forms a core part of our active ownership approach and, as such, is carried out by the people with day-to-day responsibility for investment decisions - our portfolio managers," the report states.

Read more: IOOFRoyal CommissionAPRAESGMartin CurrieAustralian Prudential Regulation AuthorityGovernance AssessmentManaged Action PlanStewardship Report
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