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Please read the following terms and conditions carefully. By accessing rbcgam.com and any pages thereof (the "site"), you agree to be bound by these terms and conditions as well as any future revisions RBC Global Asset Management Inc. ("RBC GAM Inc.") may make in its discretion. If you do not agree to the terms and conditions below, do not access this website, or any pages thereof. Phillips, Hager & North Investment Management is a division of RBC GAM Inc. PH&N Institutional is the institutional business division of RBC GAM Inc.

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Products and services of RBC GAM Inc. are only offered in jurisdictions where they may be lawfully offered for sale. The contents of this site do not constitute an offer to sell or a solicitation to buy products or services to any person in a jurisdiction where such offer or solicitation is considered unlawful.

No information included on this site is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any product or service. The amount of risk associated with any particular investment depends largely on the investor's own circumstances.

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The material on this site has been provided by RBC GAM Inc. for information purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM Inc. It is for general information only and is not, nor does it purport to be, a complete description of the investment solutions and strategies offered by RBC GAM Inc., including RBC Funds, RBC Private Pools, PH&N Funds, RBC Corporate Class Funds and RBC ETFs (the "Funds"). If there is an inconsistency between this document and the respective offering documents, the provisions of the respective offering documents shall prevail.

RBC GAM Inc. takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when published. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM Inc., its affiliates or any other person as to its accuracy, completeness, reliability or correctness. RBC GAM Inc. assumes no responsibility for any errors or omissions in such information. The views and opinions expressed herein are those of RBC GAM Inc. and are subject to change without notice.

About Our Funds

The Funds are offered by RBC GAM Inc. and distributed through authorized dealers. Commissions, trailing commissions, management fees and expenses all may be associated with the Funds. Please read the offering materials for a particular fund before investing. The performance data provided are historical returns, they are not intended to reflect future values of any of the funds or returns on investment in these funds. Further, the performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. The unit values of non-money market funds change frequently. For money market funds, there can be no assurances that the fund will be able to maintain its net asset value per unit at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund securities are not guaranteed by the Canada Deposit Insurance Corporation or by any other government deposit insurer. Past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. RBC ETFs do not seek to return any predetermined amount at maturity. Index returns do not represent RBC ETF returns.

About RBC Global Asset Management

RBC Global Asset Management is the asset management division of Royal Bank of Canada ("RBC") which includes the following affiliates around the world, all indirect subsidiaries of RBC: RBC GAM Inc. (including Phillips, Hager & North Investment Management and PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, BlueBay Asset Management LLP, and BlueBay Asset Management USA LLC.

Forward-Looking Statements

This website may contain forward-looking statements about general economic factors which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.

Accept Decline

At RBC Global Asset Management (RBC GAM), we believe that proxy voting is an important part of our stewardship process, as it provides a way for us to convey our views to the boards and management of our investee companies. We take an active and thoughtful approach to our proxy voting activities, and we exercise the voting rights of the portfolios we manage in the best interests of our clients, with a view to enhancing the long-term value of the securities held.

Each year, our Responsible Investment (RI) team monitors ongoing developments in corporate governance and, with input from our investment teams, updates the RBC GAM Proxy Voting Guidelines (the “Guidelines”) to reflect current trends and what we believe to be best practices. Each year, many issuers hold their annual shareholder meetings between April and June, a period known as “proxy voting season.” These meetings provide shareholders with the opportunity to vote on a range of issues including the election of directors, executive compensation, and shareholder proposals focused on environmental, social, and governance (ESG) issues, among other items.

In this article, we will outline relevant updates we made to the RBC GAM Proxy Voting Guidelines for 2024, as well as major themes and trends we are seeing in the market.

Notable updates

Nature-related risks

In March 2022, the Network for Greening the Financial System (NGFS), a collaboration of over 100 central banks and supervisors, released a statement acknowledging that nature-related risks could have significant macroeconomic implications, and that failure to account for, mitigate, and adapt to these implications may pose a material financial risk.1 Additionally, research from the World Economic Forum found that over half of the world’s GDP is either moderately or highly dependent on nature and its services.2 The potential systemic impacts of nature-related factors are also increasingly recognized. While not a legally binding agreement, the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF) by 188 countries in December 2022 was an important development as it set out goals, targets, and expectations regarding national commitments that aim to halt and reverse nature loss.3

Despite the global economy’s dependence on nature, efforts to quantify related risks and opportunities have been constrained by a lack of consistent and reliable data and methodologies. Recent progress has been made, with the release of the Taskforce on Nature-related Financial Disclosures’ (TNFD) final recommendations in September 2023.4 The TNFD provides a voluntary framework for issuers and financial institutions, and sector-specific guidance for the disclosure of nature-related dependencies, impacts, risks, and opportunities.5

2024 Guideline updates

This year, we added a new guideline on our approach to voting on shareholder proposals regarding nature-related risks. Following the success of COP15 (Conference of the Parties, the main decision-making body of the United Nations Convention on Climate Change) in 2022 and the launch of the TNFD recommendations, we believe greater focus may be applied on the nature-related risks faced by companies.

We believe investors may benefit from having more information on the governance of material nature-related risks. However, we recognize this is an emerging area with evolving standards. We will evaluate nature-related shareholder proposals on a case-by-case basis.

Auditor tenure

The audit plays an important role in the corporate governance process. Not only does it seek to verify the financial performance of a company, but it also aims to identify deficiencies in the internal control mechanisms of the company. We believe the audit committee has a responsibility to select and appoint an auditor in the best interests of shareholders, and we support the role of the external auditor being put to tender on a regular basis. Generally, we believe external auditor tenure exceeding 20 years is disproportionate compared to market norms.

2024 Guideline updates

In 2023, we engaged with investee companies and a Canadian industry organization on external auditor tenure. These engagements were initiated to discuss our approach to voting on the issue and in 2024 we updated our Guidelines to clarify this approach. We will not vote against the ratification of an auditor if the issuer is following regional requirements for audit tenure and the rotation of the lead audit partner. We support the role of external auditors being put to tender on a regular basis, which means the same auditor can be appointed but only after a competitive review.

Because of the average external auditor tenure observed in the market, our Guidelines also communicate that excess tenure may be a consideration in our assessment of corporate governance risks, if deemed material.

In 2024, to reflect this nuance, we updated our Guidelines to state that we will evaluate the adequacy of sunset clauses on a case-by-case basis

Dual-class stock & unequal voting rights

A company with dual-class shares gives multiple votes per share to a certain class of shares, resulting in unequal voting rights between classes of shares. This violates the principle of one share, one vote. Issuers with multiple voting shares give minority shareholders the ability to make decisions that may not be in the interests of all shareholders, or may not be supported by the majority of shareholders.

We believe there are exceptions where it may be in shareholders’ best interests to continue operating under this unequal voting rights structure. For instance, there may be cases where we believe a founder or group of founders should continue to have control of the company to keep creating shareholder value. We also recognize that when investing in an issuer with unequal voting rights, this is a known factor to the investor, which can be incorporated into the investment analysis. But we believe these limited cases should generally be supported only if there are additional shareholder protections such as a sunset clause or a regular binding vote.

Last year, we updated our voting guideline to state that we may vote against members of governance committees for issuers that have historically used an unequal voting rights structure and do not have adequate safeguards in place for minority shareholders. We defined adequate safeguards to include, at minimum, (1) a regular binding vote for holders of subordinate voting shares on whether the capital structure should be maintained, or (2) the existence of a sunset clause to eliminate the unequal voting rights structure.

2024 Guideline updates

In 2023, we reviewed several sunset clauses through the application of our updated voting guideline. The sunset clauses we reviewed were nuanced, affected by both the characteristics of the clause itself (e.g., time-based clause, dilution-based clause, etc.) and the governance of the issuer (e.g., independence, insider ownership, etc.). Further, although the existence of a sunset clause appeared to be a positive governance trait on the surface, we determined some were not structured in shareholders’ best interests.

In 2024, to reflect this nuance, we updated our Guidelines to state that we will evaluate the adequacy of sunset clauses on a case-by-case basis. We will consider the length and structure of each sunset clause, in addition to the overall corporate governance of the issuer when assessing its adequacy.

Trends

Technology risks

In October 2022, the White House Office of Science and Technology Policy developed a Blueprint for an AI Bill of Rights, which was intended to guide the design, use, and development of artificial intelligence (AI).6 In July 2023, the Biden administration secured voluntary commitments from Amazon, Anthropic, Google, Inflection, Meta, Microsoft, and OpenAI in an attempt to mitigate risks posed by AI.7 Such risks are also being increasingly recognized by shareholders. For example, at Microsoft’s last annual meeting in December 2023, 21% of shareholders supported a resolution requesting increased transparency around risks posed by misinformation generated and disseminated through AI.8 More recently, at Apple’s February 28 meeting this year, a similar proposal received 37.5% support.9 Moving forward, we expect to continue to see increased shareholder attention paid to both risks and opportunities related to AI.

Shareholder proposal trends and support

In 2021, the Securities and Exchange Commission (SEC) communicated changes to the application of its rules around no-action letters,10 and as a result, U.S.-listed companies have seen considerable growth in the number of shareholder proposals (SHPs) focused on environmental and social (E&S) issues. According to Institutional Shareholder Services (ISS), the number of E&S-related SHPs submitted at U.S. companies was at least 625 last year, representing a 39% increase from 2020. Globally, 2023 saw a 2% year-over-year increase in SHPs submitted, the highest since 2016.11

Simultaneously, support for these SHPs has been on the decline. Average support for SHPs during the 2023 proxy season dropped by 10%.12  Breaking this down further, support for SHPs focused on environmental issues dropped from 33% in 2022 to 21% in 2023, while social SHPs experienced a 5% drop year-over-year.13 Overall, just 3% of all SHPs submitted in the 2023 proxy season received majority support, in comparison to 9% in 2022.14

In addition, ExxonMobil is suing two proponents that filed a SHP for the company’s 2024 annual meeting. The SHP requested that the company set stronger climate targets with respect to Scope 3 emissions. Following the legal action taken by the company in Texas federal court, the proposal was withdrawn. However, ExxonMobil is continuing to pursue litigation. The move may put in motion a more combative dynamic this proxy season, and we expect both investors and companies will be watching the case closely.

[1] Statement on nature-related financial risks, NGFS, March 2022. https://www.ngfs.net/en/communique-de-presse/ngfs-acknowledges-nature-related-risks-could-have-significant-macroeconomic-and-financial
[2] New Nature Economy Report II: The Future of Nature and Business, World Economic Forum, July 2020. https://www.weforum.org/publications/new-nature-economy-report-ii-the-future-of-nature-and-business/
[3] COP15: Nations adopt four goals, 23 targets for 2030 in landmark UN Biodiversity Agreement, Convention on Biological Diversity, December 2022, COP15: Nations Adopt Four Goals, 23 Targets for 2030 In Landmark UN Biodiversity Agreement | Convention on Biological Diversity (cbd.int)
[4] Recommendations of the TNFD – TNFD
[5] Additional Guidance for financial institutions, TNFD, September 19, 2023, Publications – TNFD
[6] Blueprint for an AI Bill of Rights | OSTP | The White House
[7] White House secures voluntary pledges from Microsoft, Google on AI (cnbc.com)
[8] Large Apple shareholders seek AI disclosures (ft.com)
[9] Institutional Shareholder Services (ISS)
[10] SEC’s New Approach to No-Action Requests for Shareholder ESG Proposals (harvard.edu)
[11] Shareholder Proposal Developments During the 2023 Proxy Season (harvard.edu)
[12] Are There Too Many ESG Shareholder Proposals? | Morningstar
[13] Shareholder Proposal Developments During the 2023 Proxy Season (harvard.edu)
[14] A Look Back at the 2022 Proxy Season (harvard.edu)

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Disclosure

This document is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This document does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This document is not available for distribution to investors in jurisdictions where such distribution would be prohibited.

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited and RBC Indigo Asset Management Inc., which are separate, but affiliated subsidiaries of RBC.

In Canada, this document is provided by RBC Global Asset Management Inc. (including PH&N Institutional) and/or RBC Indigo Asset Management Inc., each of which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, this document is provided by RBC Global Asset Management (U.S.) Inc., a federally registered investment adviser. In Europe this document is provided by RBC Global Asset Management (UK) Limited, which is authorised and regulated by the UK Financial Conduct Authority. In Asia, this document is provided by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong.

Additional information about RBC GAM may be found at www.rbcgam.com.

This document has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.

Any investment and economic outlook information contained in this document has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions in such information.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.

Past performance is not indicative of future results. With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.

Some of the statements contained in this document may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.

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© RBC Global Asset Management Inc., 2024
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