In January 2022, Massachusetts Financial Services Company (MFS) issued its 2022 Proxy Voting Policies and Procedures. The policy is largely unchanged from the investor’s 2021 policy report, with the biggest changes for this year being:

  1. New language mentioning the integration of ESG principles into its proxy voting policies;
  2. Clarifications on its criteria for director elections; and
  3. Clarifications on its approach to environmental, social and governance (ESG) issues.

The changes are summarized in the report below, along with historical MFS voting insight that we believe is relevant going into the 2022 proxy season.

Georgeson’s 2021 MFS voting policy summary can be found here.

General Proxy Policies

One major change to MFS’s policies is its recently implemented integration of ESG principles in determining how it will vote shares of portfolio companies. MFS believes voting is an important part of its ownership activities and to that end, MFS will now implement environmental, social, and governance (ESG) factors into its proxy voting policies. To help its clients and portfolio companies further its understanding of these factors, MFS highlights its adoption of principles such as the United Nations Principles for Responsible Investment (UNPRI), as well as its participation in organizations such as Net Zero Asset Managers Initiative and Climate Change 100+. It states its belief that applying these factors in the development of voting guidelines is part of its fiduciary obligation to its clients to operate with their best long-term economic interest at heart.

Election of directors

As in previous years, MFS has provided sections detailing how it considers voting in director elections in US and non-US markets:

This year, it has added language to further clarify that performance and governance concerns which may lead to a vote against directors now includes a board’s lack of action to eliminate shareholder unfriendly provisions in the company’s charter and by-laws.

Gender diversity on boards of directors has been a focus of MFS’s since 2018. This year, it has increased the percentage of expected female representation on boards from 15% to 20%. This expectation applies to all portfolio companies in the US, European, Canadian, and Australian markets. The guidelines provide that a company’s failure to meet this new standard may result in adverse votes for the chair of the nomination and governance committee or equivalent position, though it does make allowances for mitigating factors, such as boards transitioning to meet the standard.

Updates to Policy on ESG Proposals

In its 2022 policy update, MFS has extensively modified its section covering shareholder – sponsored proposals covering Environmental, Social, and Governance (ESG) issues. MFS has added language concerning its approach to proposals topics that are not explicitly covered in its previous guidelines. It states that it may not support a proposal that, in its view, will place undue burdens, costs, or restrictions on the issuer. Furthermore, MFS may not support a proposal if the company has sufficiently addressed the matter through public disclosure. As for its approach to voting on proposals that are not explicitly covered by the guidelines, it is to handle each on a case-by-case basis. This is the same as it was in the previous year.

The next major change to its approach to ESG proposals relates to climate change. MFS now expects its portfolio companies to develop and implement a plan to reduce greenhouse gas emissions in line with the Paris Agreement of 2015. In furtherance of this goal, MFS states that it will generally support shareholder proposals that do either of the following:

  1. require climate disclosure that is presented in a globally accepted framework that has been audited and that presents the data in a way that can be easily accessed and analyzed by shareholders; the framework of the Taskforce for Climate-related Financial Disclosures (TCFD) is explicitly cited but not stated as the required format.
  2. Require the issuer to develop an emissions reduction plan aligned with the Paris Agreement, disclose the plan, and report on its implementation.

All other proposals related to environmental goals will be evaluated on a case-by-case basis. As you can see from the graph below, MFS followed with the general trend among institutional investors of increased support for climate change-related proposals reports at S&P 1500 companies for the period of 2018 - 2021.1

Investor 2018 2019 2020 2021
MFS Investment Management, Inc. 50% 100% 57% 75%

 

With regard to Social proposals, particularly those dealing with diversity, equity, and inclusion (“DEI”) topics, MFS maintains its case-by-case position of evaluating these measures. However, it has added a third set of social-related proposals that it will generally support, including proposal that undertake the following:

  1. seek to amend the company’s equal employment opportunity (EEO) policy to prohibit sexual orientation or gender identity discrimination; and/or
  2. request additional disclosure of the company’s political contribution activity – this includes both lobbying activity and contributions to trade groups; and
  3. request more employee focused DEI disclosure.

Other Updates

There were two other minor but noteworthy changes to the 2022 guidelines:

  1. MFS’s securities lending policy: MFS has limited its lending policy has now changed to allow the practice only within its mutual funds and restricted lending in its other investment vehicles.
  2. MFS voting disclosure activity: MFS will now disclose its voting activity on a quarterly basis.

MFS's updated 2022 U.S. proxy voting policies can be accessed here.

Please contact Georgeson with questions. We can be reached by email at info@georgeson.com or call us at (212) 440-9800.

1 Source: Proxy Insight Ltd.