Key Governance Developments September 2023

Norway’s sovereign wealth fund sets out more demanding transition criteria for its portfolio companies
Carine Smith Ihenacho, chief governance and compliance officer of Norges Bank Investment Management, says Norway's sovereign wealth fund has told the 9,200 companies in which it invests that they must move beyond the setting of greenhouse gas emission targets to actively planning for the climate transition. The $1.4trn Government Pension Fund Global, whose investments encompass 1.5% of all listed stocks worldwide, says companies need to identify the key performance indicators they will use to measure the delivery of their climate transition plan, as well as disclosing their progress annually and demonstrating how executive remuneration is aligned with achievement of interim transition targets. The fund says that while companies should prioritise reducing their emissions, they can also use voluntary carbon credits in certain cases. While carbon credits should not be counted toward science-based interim emission reduction targets, it says they can use verified credits as a supplement to signal high climate ambitions, adding that carbon removal will be needed by many companies seeking to achieve net zero emissions by 2050. Companies that fail to meet the fund's criteria face being jettisoned from its portfolio.

Morningstar questions BlackRock and Vanguard arguments for backing fewer ESG shareholder motions
Following a drop in support for ESG shareholder motions by major fund managers in the latest US proxy season, Morningstar says BlackRock is wrong to argue that it supported fewer resolutions due to the poor quality and overly-prescriptive nature of the proposals. It says support for resolutions supported by at least 40% of independent shareholders dipped less than for broader motions. Morningstar also suggests that the opinions of the two fund groups have diverged from the broader market.

Best source: Morningstar

Norwegian sovereign wealth fund’s manager steps up corporate climate action requirements
The companies in which Norway's sovereign wealth fund invests must complete the setting of climate targets and start investing in transition planning and management of climate risk, according to Norges Bank Investment Management chief governance and compliance officer Carine Smith Ihenacho. She says the highly visible effects of climate change have sharpened the expectations for the Government Pension Fund Global, which now accepts that while companies should prioritise reducing emissions, they may use verified voluntary carbon credit schemes as a contribution to achieving more demanding climate ambitions. However, Smith Ihenacho says the fund will not count carbon credits toward science-based interim emission reduction targets.

Best source: Reuters (free registration)

BlackRock and other investors voted to protest inconsistencies in Glencore’s climate progress report
BlackRock, which has a shareholding of more than 6%, was one of the largest investors in Glencore to vote against approving the climate progress report proposed to shareholders by the Swiss commodity trading and mining group at is annual general meeting in May. More than 30% of shareholders voted against the report, many because of concern about the strength of the company's commitment to end production of thermal coal by 2040, and to close at least 12 mines by 2035. However, BlackRock did not support a shareholder resolution demanding greater disclosure on progress in scaling back thermal coal production, which received 29% support.

Best source: Reuters (free registration)

BaFin criticises Deutsche Bank inaction over Postbank technology and service problems
German regulator BaFin has described the ongoing customer service issues at Postbank as unacceptable, having earlier publicly criticised the retail institution and owner Deutsche Bank. Such public rebukes are extremely rare, putting pressure on the bank's board to take effective remedial action after years of service problems. Deutsche acquired Postbank during the 2007-09 global financial crisis, but has struggled to integrate the business and its technology. Customers have complained about access to online services, poor customer service and long processing times. BaFin CEO Mark Branson has threatened enforcement action if the problems are not resolved.

Best source: Heise (in German)
See also: Reuters (free registration)

BaFin reviews suitability of Olearius as part-owner of M.M. Warburg as his cum-ex trial begins
BaFin has launched an owner review that could declare Christian Olearius unsuitable as a part-owner of M.M. Warburg as he stands trial for alleged involvement in cum-ex fraud. The case could raise questions about the bank's ownership structure and even its presence in Hamburg. Possible solutions might include an external shareholder coming into the bank, although its current leadership expects it to remain a private banking house owned by its family shareholders.

Best source: Börsen-Zeitung (subscription required, in German)

Climate litigation cases more than double in five years: UN Environment Programme
The total number of climate change litigation cases worldwide has more than doubled from 884 in 2017 to 2,180 in 2022, according to a study by the UN Environment Programme and the Sabin Center for Climate Change Law at Columbia University. Most cases against governments, public agencies and companies are filed in the US, but 17% have now been reported in developing countries, including small island nations that are most affected by climate change. Many cases involve government or corporate policies as well as legislation that may contravene existing commitments such as treaty provisions to lower carbon emissions, notably the Paris Agreement. The report highlights the Dutch court order that Shell must reduce its carbon emissions by 45% from the 2019 level by 2030, finding that the company had a duty under the Paris Agreement.

Best source: The Guardian
See also: UN Environment Programme

Vanguard supported just 2% of sustainability-related shareholder resolutions this year
Passive asset manager Vanguard supported only 2% of ESG shareholder resolutions in this year’s proxy voting season, down from 12% in 2022. The fund manager says the decline is due to an increased number of resolutions put to shareholders, saying some proposals are overly prescriptive and others have been made redundant by improvements in corporate disclosures of sustainability policies. BlackRock says it also supported fewer resolutions for largely the same reasons. The fund groups have been criticised by Republican state politicians in the US, including financial controllers, who have taken action to bar them from managing portfolios for state pension funds because of their supposed opposition to fossil fuels and advocacy of curbing carbon emissions.

Best source: 
Reuters (free registration)

Switzerland’s Competition Commission opens investigation into UBS acquisition of Credit Suisse
Switzerland’s competition authority has opened an investigation into the emergency purchase of Credit Suisse by UBS, agreed with and facilitated by regulator Finma, the Swiss National Bank and the government in March. The deal has been criticised by politicians for its cost, although UBS says it will not need to draw on a government backstop for losses from the deal, and the impact on competition in the Swiss domestic market. The Competition Commission is obliged to investigate any risk of market concentration, even arising from transactions approved by other regulators, and envisages sending its findings to Finma by the end of September.

Best source: 
Les Echos (in French)
See also: Reuters (free registration)

Fuchs & Associés Finance placed into compulsory liquidation after losing operating licence
Investment and fund services group Fuchs & Associés Finance has been placed into compulsory liquidation by the Luxembourg District Court after making a loss of €12.5m last year, when the firm was also fined €1.5m by the CSSF after an on-site inspection revealed multiple regulatory infringements including inadequate capitalisation and governance failures. Continuing rule breaches prompted the CSSF to withdraw the authorisation of Fuchs & Associés in July. Lawyer Alain Rukavina has been appointed as liquidator and Maria Faria Alves, vice-president of the Luxembourg District Court, as official receiver. The independent wealth management group also offered asset management and management company, life insurance and trading services through offices in Luxembourg, Brussels and Geneva, and at one point employed 150 staff. Attempts to find a buyer for the company proved unsuccessful, and its liquidation has triggered the country's investor compensation scheme, which can reimburse claims of up to €20,000. Fuchs & Associés Finance was founded in 2000 by Jean Fuchs, who owned 90% of the business and was once a member of the CSSF’s board of directors.

Best source: 
Luxembourg Times (subscription required)
See also: Reporter (subscription required)
See also: Reporter (subscription required)
See also: CSSF

Prosecutors charge Lazard Sweden chairman with aggravated bribery
Swedish prosecutors have charged Gustaf Slettengren, chairman of Lazard's business in Sweden, with aggravated bribery in connection with the 2015 acquisition of OC Oerlikon Corporation's vacuum business by Atlas Copco. Prosecutors, who say an Oerlikon board member received a €138,000 payment, have asked the courts to fine Lazard SEK1.5m ($140,000). They say the Covid-19 pandemic delayed investigation of the case and the penalties are lower than they would otherwise have been.

Best source: 
Financial Times (subscription required)
See also: Bloomberg

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