Key Governance Developments - April 2021

EU taxonomy to shake up corporate reporting and investment 

After months of deliberation and controversy, the European Commission’s green taxonomy has finally arrived. It will guide efforts to direct finance to sustainable businesses and implement tougher non-financial disclosure requirements for companies, their boards and executives. When it comes to the energy sector, however, the Commission appears to have ducked key questions about achieving a green economy by not yet taking a firm stance on so-called transition sources, including natural gas and nuclear power.

European Commission adopts sustainable finance and taxonomy measures 

The European Commission has adopted the EU Taxonomy Climate Delegated Act, the Corporate Sustainability Reporting Directive proposal, and further measures on fiduciary duties, investment and insurance advice to boost flows of money to sustainable activities. The taxonomy includes solar, biomass and thermal energy, but the Commission has not included more contentious energy sources, which will be covered by another act.

Best source: European Commission 


EU may alter contracting rules after conflict-of-interest criticism over BlackRock 

The European Commission is considering whether to require companies to declare conflicts of interest when bidding for EU-funded contracts, after criticism of its decision to hire BlackRock to research how to include sustainability requirements in banking prudential regulation. European ombudsman Emily O’Reilly says the Commission should have investigated BlackRock more closely, given that it is also one of the world’s biggest investors in oil and bank stocks.

Best source: Reuters 


Banks face financial and reputational risks from climate change: Moody’s

Banks will suffer financial costs and reputational damage if they fail to integrate climate change considerations into their strategic decisions, business processes, governance and risk management frameworks, according to a study by Moody’s Investors Service. Senior credit officer Alberto Postigo says the credit strength of banks that are slow to adapt to climate change will come under pressure. The study says the carbon transition will alter the cost-benefit analysis of banks’ lending and investment options, and climate change will also affect borrowers’ finances, creating credit risks for banks.

Best source: Moody's Investors Service 


Investors pressure banks to ditch carbon emitters 

The Institutional Investors Group on Climate Change has led 35 institutional investors to push banks to stop financing carbon-intensive projects and to increase their green lending. The group includes Legal & General Investment Management, Nordea, Northern Trust and others, with total assets under management of $11trn.

Best source: Financial Times (subscription required) 


UK parliament seeks answers on former PM’s Greensill lobbying 

The UK parliament's Treasury select committee, which is investigating possible lobbying infractions regarding Greensill Capital, has ordered former prime minister David Cameron to hand over text messages to finance minister Rishi Sunak, as well as provide oral testimony. Committee chairman Mel Stride has asked Cameron to provide a timeline of his contacts with government officials on behalf of Greensill, and to say when he became aware of the company's financial problems.

Best source: Financial Times (subscription required) 

See also: Handelsblatt (subscription required, in German) 

US companies face more ESG resolutions due to Covid-19 

The number of US companies facing shareholder resolutions on environmental or social issues has increased to 484 this year from 446 in 2020, according to investor advisory firm Institutional Shareholder Services. Corporate reaction to the outbreak of Covid-19 and actions taken during the pandemic, particularly in the way companies treat staff, have driven the rise, resulting in a shift from pure disclosure to accountability, according Nuveen senior director Peter Reali. Pfizer faces a shareholder challenge on the higher prices it charges for its Covid-19 vaccine and Amazon faces questions over how well it protected staff from the virus.

Best source: Financial Times (subscription required) 

BlackRock faces higher borrowing costs if ESG targets missed 

BlackRock may face higher interest charges on its $4.4bn five-year credit facility with banks if it fails to meet ESG targets, including the number of women in senior roles and the diversity of its workforce. The investment group has committed to increase the share of ethnic minority staff in its US workforce by 30% by 2024, and aims to increase the number of women in its senior leadership by 3% each year.

Best source: Wall Street Journal (subscription required) 

Deliveroo shares plunge on market debut 

Shares in Deliveroo fell by 30% in early trading after their March 31 launch on the London Stock Exchange amid doubts about the food delivery company’s corporate structure and business model. Deliveroo's share price has hovered around 25% below launch price since. Concern about regulation surrounding the rights of workers has also dissuaded some investors, after the UK’s Supreme Court ruled that Uber drivers must be paid like employees and entitled to holidays and the minimum wage. The IPO's poor showing could be considered an embarrassment given London’s ambitions to be a centre for the listing of technology companies.

Best source: Frankfurter Allgemeine Zeitung (subscription required, in German) 

See also: Le Temps (subscription required, in French) 

See also: Financial Times (subscription required) 

See also: Reuters 

EBA proposes rules on disclosure of investment firms’ voting behaviour 

The European Banking Authority is proposing rules on disclosure of investment policy to help stakeholders understand investment firms' influence over companies in which they have voting rights, and the impact of investment firm policies on governance or management of these companies. The proposal includes templates for disclosing and explaining voting behaviour and how actively the investment firm exercises its voting rights, as well as the use of proxy advisory firms. The EBA has launched a public consultation on the draft regulatory technical standards, open for comments until July 1.

Best source: European Banking Authority