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Engagement
Review
2023 Engagement Projects

Review – 2022
Engagement
ReviewEngagement– 2023 Engagement
Projects and Projects
Priority IssuersContents
Introduction

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Projects review

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Engagement Review – 2023 Engagement Projects

Introduction
At Columbia Threadneedle we view
engagement and proxy voting as powerful
levers that can help create investor value.
Proactive engagement on behalf of our clientsis an integral part of our approach.
On an annual basis, the active ownership analysts conduct
a high-level assessment of a wide range of current andemerging Environmental, Social, Governance (ESG) issues
and their potential impacts on long-term investment returns,
and on the economy, environment, and society. The resultsof this assessment determine the specific ESG issues
on which we will focus our engagement activities going
forward. Project-based engagements on specific issues
normally run for two to three years and are concluded by afinal assessment of progress.
This report provides a summary review of the engagement
projects we undertook in 2023, and the progress wemade within.
We publish this report alongside our Engagement Outlook,which details our thematic outlook and engagement
projects for 2024.

Claudia Wearmouth
Global Head of Responsible
Investment

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Engagement Review – 2023 Engagement Projects

2023 projects
in review
Discover the progress we made with our thematic
engagement projects over the past year.

Coal Phase out

SDG goal(s)During the course of 2023, we conducted 50 engagement
activities with 26 companies regarding their phase out ofthermal coal. This was primarily with electric utilities, as well as
issuers involved in thermal coal mining.

Coal Alliance during COP28, committing to no new unabatedcoal plants and to phasing out existing unabated coal power
generation.

In many developed markets, the year has been marked
by continuation in the structural decline in thermal coalconsumption and generation, following a small rebound in coalfired generation in 2022, in light of energy security concerns
raised by Russia’s invasion of Ukraine.

We have spoken with several European and US utilities
regarding their progress and management of the phase-out ofthermal coal units, encouraging further disclosure on plans forthe end-of-life of these units and gaining greater understandingof impairment risks from changes in government phase-out
dates.

During the year we have seen several governments bringing
forward their coal phase-out timelines, for example Spainbrought their phase-out date forward to 2025 from 2030. While
the US, alongside 8 other countries, joined the Powering Past

For example, during the year we have engaged seven times
with RWE, one of the largest European electric utilities. The
company have brought forward their thermal coal generation
phase-out date to 2030, and disclosed asset-by-asset timelines1

See more on our engagement with Japanese utilities in our ESG viewpoint ‘A deep dive on Japan’s love carbon transition’, October 2023.

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Engagement Review – 2023 Engagement Projects

for this phase-out. We have been seeking further informationon the end-of-life plans for these assets, and the company islooking to disclose ‘green conversion roadmaps’ for these.
With plans to close their three existing open-cast lignite mines,
the Just Transition has been a key theme of this engagement,
and it was positive to see that they have agreements in place
regarding early retirement and re-skilling of employees with thelocal governments and trade unions.

to co-fire with ammonia or biomass. We have engaged with
Kansai Electric, one of Japan’s largest electric utilities, fourtimes during the year. We have sought greater understandingof the technical and economic feasibility of co-firing ammonia
and hydrogen into these units, the lifecycle emissions
reduction associated with these technologies, and theirstrategy to use offshore and overseas carbon storage sites
for Carbon Capture, Utilisation and Storage (CCUS)1.

We have also engaged with several asian companies, where wehave seen the opposite trend, with thermal coal consumption
increasing during 2023 as China, India and Indonesia
continued to commission new thermal coal capacity. Thishas been driven by growing electricity demand, government
concerns over energy security and affordability, and a growing
need to provide reliable baseload power and grid resiliency,
given the risk of intermittent energy supply from renewables
sources as their share of the power mix increases.

There remains a range of approaches to managing the coalphase-out, including decommissioning, conversion and saleof assets. These are determined by several local and regional
factors, including government policy and access to financing.
We will seek to continue engaging companies on this theme
in 2024.

With high reliance on coal-fired power generation and a plant
fleet with an average age below 15 years, the conversations
with these companies have been focused more on their plans
to convert these assets, with several utilities focusing on
retrofitting existing units with carbon capture and storage, or

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Climate change and banks

SDG goal(s)During the year, we have conducted over 50 engagements withmore than 30 banks on their climate risk management.

climate risk management is now feeding into firm-specificcapital add-ons.

Through the course of this engagement, we have seenenhancements in banks’ governance and management ofclimate risks, with many now incorporating climate risks into
their risk appetite statements and continuing to strengthen
their climate scenario analysis. We have also seen an
expansion of the sectors and portion of banks’ loan books
covered by financed emissions targets, and greater detail on
their strategy to achieve these. For example, banks continue totighten their fossil fuel lending policies, whilst also introducing
frameworks to assess their clients’ transition plans.

We continue to see divergence in how banks are managing
climate-related risks, with some banks still in the earlier
stages. For example, we have engaged five times in the yearwith Bank Mandiri, the largest Indonesian bank by assets,
and while not as advanced as some other developed market
banks, during the year they have responded to the Climate
Disclosure Project (CDP) climate change questionnaire forthe first time, aligned their reporting with the Taskforce on
Climate-related Financial Discloures (TCFD) recommendations
and have committed to disclosing their financed emissions.
It is also worth noting that their peer, Bank Rakyat Indonesia,
has become the first Indonesian bank to publish a standalone
TCFD report and commit to setting financed emissions targets.

These trends are in part being driven by the evolving landscapeof voluntary initiatives, as well as continued prudential
regulation. Membership of the Net Zero Banking Alliance
continues to grow, with over 130 banks now involved. We haveseen the Institutional Investors Group on Climate Change(IIGCC) and the Transition Pathway Initiative (TPI) launch the
Net Zero Standard and Assessment Framework for Banks, withan accompanying assessment of 27 banks. As members of
the IIGCC Banks Working group, we have provided input into
the development of this standard and have sought to engage
collaboratively on the outcomes of the assessment.
Central banks and prudential regulators have continued to
introduce and enhance the enforcement of climate-related
supervisory expectations, while also introducing and improving
climate scenario analysis and stress testing exercises.
For example, in January this year the US Federal Reserveannounced their climate risk stress test for several large US
banks, and more recently in October released their Principles
for climate-related financial risk management for large financial
institutions2. In some markets, this is slowly starting to have
implications for banks capital requirements, notably in the EU
where the European Central Bank (ECB) has highlighted banks’2

We have also seen several banks across different markets
publishing inaugural transition plans, for example Deutsche
Bank and DNB, widening the scope of their financed emissions
targets and elaborating on their strategy to achieve these.
Meanwhile, other banks are revising their transition plans,for example Mizuho, who have developed and disclosed theirframework for assessing client transition readiness, to guidetheir transition finance and client engagement, and provide
aggregate disclosure on client progress within this framework.
As the project timeline has now ended, engagement on
this topic will now transition into our broader engagement
activities as we continue to engage with banks on climate risk
management.

Federal Reserve website, ‘Agencies issue principles for climate-related financial risk management for large financial institutions’ press release dated 24 October 2023

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Engagement Review – 2023 Engagement Projects

Physical risks of climate change

In 2023 we engaged companies in the utilities,
infrastructure, food and (re)insurance sectors on how
they are building resilience to climate impacts, by bothquantifying the risk exposure and developing adaptation
measures. These sectors were selected based on anassessment using data from Moody’s 427 physical risk
tool – one of the most comprehensive datasets on climate
risk that is available, enabling us to focus our engagementon companies where these risks were the most material.
2023 was the hottest year ever recorded, with extreme
weather experienced globally as a result, making this project
particularly topical when we reached out to issuers.
Overall, the project case-studies were invaluable indeveloping our approach to appraising physical risk
disclosure and management. The questions we developed
for the project – and the examples of best practice – weredirectly transferred into our broader climate engagement
agenda throughout the year. Therefore, it is worth notingthat the 16 issuers targeted within this project are only thecore-project names engaged on the topic, as we spokemuch more broadly to a range of issuers on physical risks
throughout the year.
The project refined our view on best practice on the topic,
particularly when considering that adaptation expectations
and Key Performance Indicators (KPIs) are both extremely
broad and context specific, requiring a much more sectorspecific approach. This is in marked contrast to climatetransition/mitigation where Greenhouse gas (GHG)
emissions is predominantly the key KPI. Physical risk is now
a core pillar of our engagement strategy, drawing on lessons
learnt in this project.

SDG goal(s)clearly illustrated the current and increasing materiality ofthe topic to the sector.
■ In the utilities sector our conversations with Enel, A2A,
Fortum OYJ, SNAM and Engie also produced mixed
responses. It was evident that some companies – such as
A2A who have conducted risk assessments and outlined
the 10-year capital expenditure needs for adaptation – areleading the pack. Other issuers have not yet conducted or
published basic asset risk assessments, leaving investors
with a much harder task in assessing overall resilience.
■ In the construction sector we engaged 4 European majors;
Skanska, Ferrovial, Eiffage and Barratt Developments.
Overall, the construction sector does not yet seem to havequantified or constructed a ‘narrative’ on its role in making
society more resilient to climate change impacts. There isdiversity in the impact to the sector due to the variety inbusiness models, hence also very context-specific methods
for measuring impact and mitigation.
■ Finally, we spoke to insurance providers Munich Re andHannover Re on their natural catastrophe modellingcapabilities, considering the increasing insured losses
from climate events which are leading to growing insurance
premiums for corporates. These engagements focusedon their process for reviewing and updating their internal
natural catastrophe models, and how they are looking toincorporate forward looking climate risks into these models.
Both companies provide good insights and reassurance
over their ability to model and price different physicalclimate risks.

■ In the food sector we engaged Kerry Group, Carlsberg,
Casino, Ebro Foods and Sonae. Due to the diversityof sectors and companies’ supply chains, the ways inwhich companies assess the magnitude of the risks
in their value chains varied, however, all conversations

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Engagement Review – 2023 Engagement Projects

Deforestation

SDG goal(s)Deforestation is a major driver of the twin crises of biodiversity
loss and climate change. The destruction and fragmentationof forests is the biggest driver of extinctions across the world,
and the deforestation and forest degradation contribute up to
15% of the carbon dioxide emissions caused by human activity.
This is primarily linked to the production of commodities
including palm oil, soy, cattle products, timber, cocoa, coffee
and rubber. Countries that import these commodities are
increasingly enacting deforestation regulation – the EU
Deforestation Regulation is the most substantial and extensive,and entered into force in June 2023.

for the first time this year and began working with respectednongovernmental organizations (NGOs) (such as Rainforest
Foundation Norway and the World Wide Fund for Nature(WWF)) to enhance their deforestation due diligence.
2023 also saw China Mengniu Dairy take a credible step
forward, as the company announced its Forest Protection
Policy which includes a commitment to zero-deforestationand to eliminate the practice from its value chain by
2030. We have engaged the company on this topic fora number of years and were encouraged that it became
the first company in China to make this commitment. We
have also engaged financial institutions, for example wehave had several conversations with Banco do Brasil,
the largest agribusiness lender in Brazil, regarding theirenvironmental and social risk management process inrelation to deforestation and their provision of rural credit
to support sustainable agriculture production and hope to
see progress in the coming year.

We launched our deforestation project at the start of 2023.
We prioritised issuers for engagement using a bespoke toolthat we have developed to appraise the quality of deforestation
management of issuers involved in soft commodity value
chains. We combine datasets from sources including Forest
500, CDP Forests, ZSL SPOTT, Forests & Finance and MSCI to
identify holdings with material exposure to deforestation impact
and risk with poor quality management. Through our analysis
we discovered that the most common criteria which issuers failagainst are targets and traceability. Our key asks of the issuers
we engage with through this project were to commit to no
conversion of natural ecosystems and/ or zero deforestation,and to trace at least 90% of the total production/consumption
volume of all high-risk commodities down to the relevant
production site or processing facility level. We also sought
to engage issuers on policy and procedures, certification,
due diligence, indigenous and smallholder support and risk
assessments.
Over the past year we have conducted 59 engagements with35 issuers on deforestation. We achieved notable progressin our engagements with Lear Corporation and Adient, thesecompanies are both linked to deforestation through the leather
they procure for use in car seats and interiors. We have been
engaging with these companies on deforestation for the past
two years, and they both published deforestation policies

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We are conscious that to achieve meaningful change
on deforestation we need to collaborate with experts
in the field and bring other investors with us. We are
active participants in the Investor Policy Dialogue on
Deforestation (IPDD) in both the Brazil and consumer
countries working groups. In April we took part in an
IPDD delegation visit to Brazil to engage with the new
Lula administration and push for reform. We continue tolead the Investor Working Group for a Deforestation-Free
Automotive Industry, and work closely with NGOs including
Rainforest Foundation Norway, Zoological Society of London
and Tropical Forest Alliance on deforestation.

Engagement Review – 2023 Engagement Projects

Emissions and plastic waste

SDG goal(s)In its second year, we delved deeper into research andengagement within the chemicals industry, to continue
our initial goal of promoting a sustainable transition. 2023
served as an opportunity to learn what steps companies
are taking to reduce their GHG emissions and scrutinise
their approach to product stewardship. Through the former,
we expect to see Paris-aligned climate strategies, whilst
the latter should see the transition to a greener and safer
portfolio of chemicals. Befitting of such a complex andheterogeneous industry, our project companies span a rangeof different sub-industries with varying global regulations.
For 2023, we reached out to 17 of the largest chemicals
companies globally.

pushed companies on their management of hazardous
chemicals. We received a welcome update from American
multinational chemical company DuPont de Nemours, thelowest ranked company, who informed us they are looking
to make improvements for their next iteration of reportingand increase transparency on their production portfolio.

We found receptiveness to our engagement has been,
overall, positive. As the third-highest industrial emitter ofcarbon dioxide in the world, the chemicals sector is working
hard towards managing its GHG emissions profile. We
were pleased to see an increase in companies fleshingout their approach to reducing their Scope 3 emissions,with many companies setting goals and providing someroadmaps on achieving this, with many companies
partnering with external working groups to assess how
to approach such a difficult task. Specialty chemicals
company Sika AG informed us they are partnering with
Together for Sustainability (TfS) to come together withother companies in the industry, share knowledge,
and work towards providing suppliers guidance to help
manage their emissions. Industrial gas and services
provider Air Liquide has undertaken its first Scope 3
objective to have, within two years, 75% of its Top 50
customers committed to 2050 Carbon Neutrality. We also
witnessed some caution from some companies on setting
medium-term Scope 1 and Scope 2 reduction goals as
they are awaiting the development of new technology toensure they are able to meet new targets. Leveraging
findings from the Swedish governmental organisation,
ChemSec’s ChemScore initiative’s Report cards, we

We observed many companies experiencing large structuralchanges, including new management and mergers,
however these disruptions did not hinder companies
from meeting their ambitions. This year, DSM and
Firmenich International completed their merger to form
DSM- Firmenich. The new company is working towards
integrating two separate sets of sustainability targets but
is still working towards legacy goals until this is finalised.
PPG Industries, the largest coatings company in the world
by revenue, appointed a new CEO and in our engagement,
they emphasised that they are looking to grow the salesof their sustainable products. We will continue to pulse
companies on their progress on meeting their reduction
goals and encourage additional transparency aroundproduct stewardship efforts.

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Engagement Review – 2023 Engagement Projects

Mandatory human rights due diligence

SDG goal(s)Investors face increasing scrutiny to evidence how the negative
impacts associated with the operations of investee companies
are mitigated, particularly in relation to social risk management,
which has gained prominence. A lack of disclosure is a key
hurdle. We continue to be reliant on data from ESG data
providers and more in-depth analysis on human rights,
conducted by NGO groups. Access to disclosure, normativeand controversy-based indicators provide an effective way to
conduct an initial screening of potential exposure to humanrights risks. We are cognisant that until there are widely
accepted international standards of social disclosure, bottomup analysis on a company-by-company basis, coupled withrobust engagement strategies, will continue to be the mosteffective way to assess risk.

on human rights risk management given that the share ofcompanies scoring zero on key human rights indicators
has decreased since the benchmark’s inception in 2017.
Nonetheless, there are clear differences in progress at a sector
level.

We initiated our Mandatory Human Rights Due Diligence(MHRDD) project in Q1 2022, where our initial focus was on
26 companies from both developed and emerging markets,covering the extractives, automotive, technology, food retail,agriculture, and apparel sectors. Under this project, we
specifically sought to engage with companies that scored zeroon the human rights due diligence indicator of the Corporate
Human Rights Benchmark (CHRB) – provided by the World
Benchmarking Alliance. In Q2 2022, given Russia’s war with
Ukraine and international sanctions, we removed Russiancompanies from the project and moved forward with 22
companies.
At the start of the project, the most recent iteration of the
CHRB was published in 2020. Since then, benchmarks
covering companies in the Automotive, ICT, Food andAgricultural sectors were updated in November 2022 andthis was followed by the Apparel and Extractives sectors inNovember 2023. In terms of performance on the CHRB, wenote that 8 out of 22 companies improved their score on
the human rights due diligence indicator of the CHRB – BRF,
Carlsberg, Shoprite, Ralph Lauren, Starbucks, Yum Brands,
Capri and Costco. Overall, the benchmark notes progress

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Consumer companies improved the most. Regarding the
CHRB human rights due diligence indicator, we saw the mostimprovement across food and apparel companies. As wehighlighted earlier in the year, Ralph Lauren- one of the mostengaged companies in the project, improved its disclosure
on human rights risk management and we are pleased tosee them recognised by the CHRB as one of 12 companies
that had showcased “transformative change” since thebenchmark began. We will continue to encourage progresson these topics in 2024. Improved performance across food/beverage companies was mainly driven by better transparency
on accountability for human rights within the business. At
Carlsberg, this was reflected through disclosure of senior
management responsibility for the human rights policy throughthe company’s SVP Group HR. For the 4 extractives companies
covered by the project, we saw no improvement on their
MHRDD performance per the CHRB framework, with only EOG
Resources improving its overall rank amongst the extractives
companies in our project. This is out of step with the overall
performance of the sector whereby 70% of extractives
companies have improved their performance on the benchmark
since their inclusion.
Key learnings from the project include a need to ensure
investee companies evidence the effectiveness of their risk
mitigation approaches, moving from policy to action. For
consumer-based sectors, an understanding of the untoward
effects of operational programs on supply and value chainsshould be reflected in their efforts to address human rights
risks. Finally, holistic due diligence frameworks are essential,
and companies can no longer rely solely on audits to identify
human rights and labour standards risks.

Engagement Review – 2023 Engagement Projects

Social audit assurance

SDG goal(s)In 2022 we began a two-pronged project focusing on the audit
practices of retailers and food service companies alongsidesocial audit and assurance providers. The project has allowed
us to gain a better understanding of the drivers of social audit
practices, for consumer companies with extensive supply chains
and in addition, to understand the sentiments held by ESG audit
and assurance service provider “testers”. Now that we havereached the end of the project, below we reflect on the outcomes
and learnings that can be applied to future engagement
programs.

Emerging market companies are catching up. In our dialogues
with Shenzhou International, a major Chinese manufacturer, it
became apparent that supply chain risk assessment is not just awestern concept. Cognisant that the company’s own employees
are the tier 1 supply chain workers of many well-known brands,
Shenzhou understands that it must manage its own human capitalrisks to attract and retain the best talent and therefore its clients.
Brands expect the company to cascade expectations over working
standards and additional due diligence to suppliers. In addition,
they have incentives for this in terms of supply chain resilience.

There is a clear need for implementation of holistic frameworksof due diligence. Through our engagement, a key theme
has been a perceived over-reliance on audits, which do notpresent holistic frameworks of due diligence. A core aim of ourengagement has been to encourage more robust and holistic
due diligence strategies. This involves companies undertaking
efforts to identify, mitigate and remedy any adverse impacts theiroperations may have on people and the planet. In the context
of the consumer companies in the project, there is a direct
applicability to supply chain risk management. In this regard wehave asked companies to broaden their due diligence approachbeyond audits. We view this as particularly important given the
proliferation of supply chain due diligence legislation we haveseen in recent years. Here we value the interactions we had withcatering and support services company Compass Group as partof the project. The company displayed a more mitigative approachby applying learnings taken from supply chain issues faced in the
Middle East relating to working conditions and the recruitment of
migrant labour, to its UK supply chain.

There must be responsibility for corrective action and remediation.
Earlier in the year, we highlighted particular sentiment amongst
audit providers that audits generally only provide an indication ofrisk to clients but corrective actions to resolve issues are solely
the responsibility of those commissioning the audit. This rang truein our discussions with Intertek, where it was highlighted that due
to the voluntary nature of ESG disclosures, clients may request
only basic levels of service. Beyond training on best practicefor client employees or suppliers, it is not the role of testers toprovide remedy for issues identified.

Vertically integrated brands are better able to manage risks.
Where companies benefit from heavily vertically integrated supply
chains, they are able to more easily utilise their leverage toensure non-compliances are remediated. At apparel manufacturer
Hanes Brands, we noted the application of the company’s own
audit scorecard to both own-operated factories and those ofsourcing partners. This allows them to track ESG risks across the
supply chain and helps inform purchasing decisions.

There are also key opportunities for the ‘testers’. According
to industry research, there is an estimated $5 billion market
opportunity linked to testers assisting their clients in fulfilling
the requirements of the EU’s Corporate Sustainability Reporting
Directive and other regulations mandating supply chain due
diligence. In particular, our engagement has highlighted 3 mainareas of focus, 1) client education and awareness of the regulatory
requirements, 2) gap analysis and 3) independent audit work.
Given this, we believe the efficacy of audit and assurance services
will be key to capitalising on the market opportunity. There is arisk that negligence on the part of ESG audit providers in failing to
identify egregious labour standards and human rights risk could
negatively impact brand value and their ability to win new clients.
Therefore, we believe ESG audit providers may need to apply more
scrutiny over their clients’ implementation and oversight of remedy
and supplier rectification of non-conformances in order to insulatethemselves from liability.

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Responsible governance ofArtificial Intelligence (AI)SDG goal(s)The development of Artificial Intelligence (AI) is becoming
increasingly widespread as companies look to automate theirdecisions and create new opportunities in a data-centred
world. While there are vast benefits to AI, including increased
efficiencies, there are also risks and harms associated withmisuse, which raises questions about the accuracy, fairness,
privacy, and security of these AI systems. This project seeks
to engage companies that did not have a commitment toethical AI principles as assessed in the 2021 findings of theWorld Benchmarking Alliance’s Digital Inclusion Benchmark.
At the time of the launch, only 20 out of 150 companies had
evidenced a public commitment. As at Q3 2023, 52 of anincreased cohort of 200 companies have adopted ethical AI
principles, highlighting the increased willingness and demandfor companies to adopt AI in a responsible manner. The
breakout of Generative AI in 2023 has spurred stakeholderinterest in exploring the benefits of AI, including increased
efficiencies and cost reduction. Equally, there has been
more interest in exploring how companies should seek tosafeguard AI risks ranging from inaccuracy to cybersecurity
and regulatory compliance.

■ PayPal is one of the companies that has a more matureapproach to Responsible AI. The payment services company
has a risk-based approach and has identified credit
underwriting and fraud use cases have the largest impact
on customers. It has a control and check point in place toassess whether AI models meet its ethical AI principles.
AI governance is overseen by the Chief Risk Compliance
Officer who reports to the board annually on the progress of
responsible AI.

The companies in the responsible governance of AI project
are at various stages of their Responsible AI journey. This is
primarily due to the wide scope of companies’ use cases ofAI but also the level of companies’ comfort with disclosureon the topic. We reached out to companies for initial
dialogues to understand how they define AI in their businessand business strategy, their responsibility for ethicalconsiderations of AI, and whether companies would consider
making a public commitment to ethical AI. With some moremature companies, we also asked how they assess ethicalAI risks and operationalise AI principles in practice.

■ Amazon has committed to the White House’s commitments
to advance the responsible and secure use of AI. It is seeking
to explain to customers how it uses AI and states that it does
not see high risks with its use of AI.

While we saw some progress being made by companies in
the project, other companies were more reluctant to share
information:

12■ Korean internet site and web portal services company NAVER
has published ethical AI principles and states it reviews all AI
services prior to launch to prevent potential risks. In our view,
further detail is required on its impact assessment and its AI
governance process.
■ Chinese internet and technology company Tencent statedthat ethical AI is integrated as part of its privacy impact
assessment for its products and services. AI governanceis overseen by its ESG governance body which includes theBoard. It ensures humans are kept in the loop to conduct
reviews of AI decisions to train the model.

■ eBay is internally working on building out a governancestructure for ethical AI which will include a cross functional
working group.
■ We were disappointed to note that online travel marketplace
Airbnb did not respond to requests for engagement on
Responsible AI.

Engagement Review – 2023 Engagement Projects

Diversity in clinical trials

SDG goal(s)The Covid-19 pandemic has highlighted the need to ensure
vaccine uptake in ethnic minority and underrepresented
communities by building trust through fully representative
clinical trials. There is an increasing body of researchrecognising that there can be a differential response totreatments across diverse populations. No change in practicebrings potential risk of lower confidence in treatments andvaccines, and overall reputational and commercial risk
for companies involved. Existing and upcoming regulatory
requirements will push the industry to include diversity
planning in their trial protocol or justify why this is notnecessary. Being unprepared for this might result in novel
drugs and therapies not being approved by the FDA, which
poses a very material risk to drug manufacturers and Contract
Research Organisations (CROs).

execution of diversity in clinical trials commitments andtargets. An example is healthcare products provider Johnson &Johnson, who have a dedicated Diversity, Equity & Inclusion in
Clinical Trials team.

In 2023 we kicked off an engagement project on diversity inclinical trials with the objective to assess issuers’ awarenessof the importance of inclusion in clinical trials, to understandthe challenges they are facing, to understand existing
strategies and encourage efforts to improve diversity anddisclosure. In May 2023, we attended a two-day Summit on
Diversity in Clinical Trials in Philadelphia which brought together
companies, patient advocacy groups and other experts todiscuss the necessity of diverse clinical trials, best practices,and challenges.

3. Target setting and progress tracking – The most robust
diversity in clinical trial commitments are backed up by targets
to ensure immediate action and a clear direction of travel. A
number of pharmaceuticals companies have publicly disclosed
targets, such as GSK, AbbVie, and Bristol-Myers Squibb. For
most companies, we have not found evidence of publicly
available targets.
4. Stakeholder and community engagement – Close
collaboration with patients, patient advocacy groups andtrusted leaders is crucial to incorporate the patient perspective
into the strategy. Working with patient advocacy groups is very
common in the industry.
5. Address systemic challenges – There exist systemic barriers
that impact attraction and retention rates, for instance trust.
A historical lack of trust in the pharmaceutical sector remains
an important reason why many under-served and underrepresented communities are reluctant to participate in clinical
trials. All companies we spoke with are fully aware of thenecessity of trust-building for long-term financial success.

Drawing on the Summit, research, and our conversations with
12 investee companies, we have identified an initial 5 key
elements of a diversity in clinical trials strategy:
1. Policy commitment and strategy – Most companies we
spoke with have a commitment to diversity in clinical trials.
However, disclosure on how they aim to achieve this varies
significantly.
2. Governance of diversity in clinical trials – Companies thathave committed to diversity in clinical trials have senior level
involvement and dedicated resources to ensure successful

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Review – 2022 Engagement Projects and Priority Issuers

Improving board gender diversity in Asia

SDG goal(s)This three-year project aims to engage the most influential
Asian companies with all-male boards, as empirical evidenceshows that an inclusive and diverse company – especially at
the highest leadership level – often outperforms other lessdiverse peers. At the end of 2022, we reached out to all of
the companies in the project to inform them of our gender
diversity expectations – currently set at 13.5% in developing
markets – and that we will vote against directors where weview it as necessary.

■ Japan also intends to set a target for Prime Market
listed companies to have at least 30% female board
representation by 2030 with Shin-Etsu Chemical and
Sumitomo Realty & Development Co. responding by adding
their first female directors.

In 2023, we saw good progress, having engaged 26
companies in the project on this topic across 34
engagement activities, and observing 13 companies adding
a female director to the board. Due to market pressures,
many regulators in Asia have also begun to enhance theirboard gender diversity requirement, leading to positive
developments at some of our target companies.
■ Hong Kong listed companies are required to appointat least one director of a different gender no later thanthe end of 2024. We were pleased to note that Baidu,
Meituan, BYD, Yankuang Energy Group Company Limited,
COSCO SHIPPING Holdings, and China Minsheng Banking
Corp met this requirement a year early.
■ Taiwan issued a new Sustainable Development Action Plan
in March 2023, which called for listed companies to add atleast one female director starting in 2024. In light of this,we welcome MediaTek adding its first female director inMay.
■ Around 150 non-financial issuers in South Korea withtotal assets exceeding two trillion Korean Won needed
to comply with “no single gender” board requirements in
2023 set out by the Financial Investment Services andCapital Markets Act. We saw progress being made by L&F,
Ecopro BM, and Doosan Enerbility.
3

Diversity matters even more: The case for holistic impact McKinsey

14■ In China, we also saw an early mover from Will
Semiconductor Co., Ltd. Shanghai, despite not having any
regulatory requirement as yet.
However, there are many companies that still have all-maleboards. Various issuers in Hong Kong and China did not makeany improvement or respond to our engagement. We also
had the same difficulty with a lower number of companies inin Japan.
Two Indian state-owned companies in the project –Power Grid Corporation of India and State Bank of India– did not comply with the requirement for at least one
female independent director, but given the fine is set ata seemingly low maximum of INR 350,000 (c$4,250),
there is little financial cost to their non-compliance. Yang
Ming Marine Transport Corp in Taiwan, which aimed for
15% board gender diversity by 2027, also explained
the difficulties in the industry and the impact of thegovernment having a final say on candidates. Korean
companies such as HMM do not have to face any penalty
or disclosure obligations for non-compliance.
In 2024, we will continue with this three-year project byinviting companies to enter into dialogue with us, sharing
good case studies and research, as well as escalating
our concern through voting against directors we deem
responsible for the shortfall in gender diversity. We willcontinue to focus on engaging with companies that still havean all-male board, encouraging them to consider a time-boundtarget and have a robust gender diversity policy in place.

Engagement Review – 2023 Engagement Projects

Overall, there is a strong
correlation between diversity
in influential company
leadership roles and multiple
indicators of holistic impact
across workforce, community,and environmental
components3.

15

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