When dialogue fails, action speaks: Why we divested from an Indonesian bank

Royal London Asset Management’s Sustainable Equities team have divested from Bank Rakyat Indonesia. This was due to escalating governance concerns and the inability to influence meaningful change through engagement.

Despite acceptable governance at the time of initial investment, recent developments have significantly worsened the governance profile of Bank Rakyat Indonesia (BRI). We have voted against multiple resolutions over several years and engaged extensively with the company, but the lack of transparency and accountability has led us to conclude that the risk-reward profile is no longer attractive.

Bank Rakyat Indonesia is one of Indonesia’s largest state-owned banks, historically recognised for strong shareholder returns and ESG performance.

Background

Bank Rakyat Indonesia is one of Indonesia’s largest state-owned banks, historically recognised for strong shareholder returns and ESG performance.

We initially assessed the governance as acceptable in a global context and better than local peers. Areas of strength included gender diversity and independence on the Board, and our view was that governance would continue improving over time. Once invested, we began engaging with the company to encourage governance improvements in areas such as shareholder engagement and non-executive remuneration.

Concerns around BRI have grown steadily since our initial investment, particularly around board governance and remuneration. The company has consistently failed to disclose board nominee details to minority shareholders ahead of Annual General Meetings (AGMs), undermining shareholder rights and best practice standards. This year, at the 2025 AGM, 16 members of the Board of Directors and Board of Commissioners were “honourably dismissed[1]” without prior notice to minority shareholders. This was only disclosed afterwards in the meeting minutes.

The scale of these changes was unprecedented. In previous years, between two and six board members were dismissed annually. The newly appointed replacement directors had ties to the Indonesian government, including senior officials such as the Head of the Indonesian Land Bank Agency and a Deputy Minister for SMEs. All independent and female commissioners were removed, leaving the Board of Commissioners entirely male and non-independent. We believe independence and diversity to be essential for optimal board decision-making and meaningful representation of directors free from conflicts of interest.

While BRI continues to perform well on other ESG metrics and has not yet taken any identifiable actions against minority shareholder interests, the direction of travel was concerning.

While BRI continues to perform well on other ESG metrics, and has not yet taken any identifiable actions against minority shareholder interests, the direction of travel was concerning. Additionally, we saw the introduction of Indonesia’s sovereign wealth fund, Danantara, which now manages BRI as part of a broader portfolio, adding further complexity. Although Danantara has made public commitments to transparency, in our view there are concerns with the limited pool of decision-makers involved and risks around potential conflicts of interest. This situation can also draw comparisons to past regional financial scandals, further fuelling scepticism.

Exercising our rights

At Royal London Asset Management, we exercise our voting rights to hold companies accountable and attempt to influence governance outcomes.

Voting is a key tool in expressing shareholder sentiment and driving change. We have consistently voted against resolutions at BRI, particularly those related to board appointments and remuneration. The company would usually propose changes to their Board of Directors and Board of Commissioners without timely disclosure to minority shareholders. In 2024, commissioners received bonuses averaging over six times their base fees, without providing sufficient justification or transparency around performance metrics. This practice risks compromising independence and is inconsistent with our expectations to not award any performance-related remuneration to directors who are supposed to remain independent in their roles.

Despite repeated engagement, BRI maintains that such payments are appropriate and that it struggles to obtain board nominee details from the government in advance of voting deadlines. Engagement efforts have yielded limited results, as minority shareholders we have been unable to influence meaningful change given the Indonesian government’s controlling stake in the company.

The governance structure at BRI means we now deem this to be posing a material risk to our investment thesis. As a result, our Sustainable Equities team has decided to fully exit its holding, given the combination of opaque board practices, weakened independence, and the structural shift under Danatara, which we feel has significantly worsened the risk-reward profile of the investment.

Our influence

At Royal London Asset Management, we exercise our voting rights globally and hold companies accountable for their decisions and actions. The voting process is a powerful tool for potentially influencing outcomes and making relevant decision-makers aware of shareholders’ sentiments on important topics.

Our voting always aims to be pragmatic, reflective of local best practice and evolving market insights, and in the long-term interests of our clients. Alongside voting, our engagement, research, and advocacy also help to add value and meaning to our investment decisions. Voting and engagements may not always apply to any specific Royal London Asset Management fund or strategy, as each will have different investment objectives. Please check your prospectus for details on specific product objectives.

Voting decisions at BRI

[1] MoM-AGMS-2025-EN.pdf

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For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.