Key Governance Developments - April 2022

Introduction


NGOs criticise failure of financial institutions to live up to net zero pledges

Activist groups in Europe and elsewhere say that many financial institutions continue to provide funding to fossil fuel projects through direct investment or loans despite pledges to reduce the greenhouse gas emissions of their own activities and their business portfolios to net zero. They are particularly critical of groups that made high-profile announcements of their climate commitments around last November's COP26 conference, including members of the Glasgow Finance Alliance for Net Zero, some of which have not announced any policies regarding their oil and gas industry business. The same trend can be seen, the NGOs argue, among institutional investors, notably members of the Climate Action 100+ group, that fail to challenge portfolio companies on their emissions and climate policies.

Key Governance Developments

 

Financial institutions still backing oil and gas despite net zero pledges: NGOs

Financial institutions are failing to match in practice their rhetoric about sustainable investment and a retreat from financial support for fossil fuels, according to activist groups. Fewer than half of 150 leading banks, investment firms and insurers monitored by the Oil and Gas Policy Tracker compiled by Paris-based activist group Reclaim Finance have implemented oil and gas restriction policies, although many have pledged to align their portfolios with net zero goals. Only five of the institutions have partly or completely ended financial support for new oil and gas projects, while 20 companies with no policies on oil and gas industry business are members of the Glasgow Finance Alliance for Net Zero. UK-based ShareAction says banks have lent or invested around $400bn for oil and gas projects since 2016, including $33bn from banks since they joined the Net Zero Banking Alliance last year. According to the Rainforest Action Network, international banks' fossil fuel financing totalled $742bn last year.

Best source: Reclaim Finance

See also: ShareAction

See also: Financial Times (subscription required)


BaFin installs special monitor at VTB’s German bank after exodus of executives

German regulator BaFin has installed a special monitor at VTB Bank (Europe) after the apparent departure of four out of five executive board members, making the appointment of a second executive director necessary for the bank to conduct business. While Western sanctions have targeted Russian parent VTB Bank, they do not apply to the Frankfurt-based business. The German authorities plan to stabilise VTB Bank (Europe) before eventually liquidating it.

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


UK construction and outsourcing groups particularly at risk of audit failures: regulatory body

The high-profile failures of construction companies and outsourcing groups in the UK has not led to improvements in corporate governance and the effectiveness of independent auditors, more than four years after the January 2018 collapse of Carillion highlighted unhealthy relationships between audit firms and the companies they work for, according to Britain's Financial Reporting Council. It says it still finds that auditors are failing to challenge accounting judgements by construction companies, although audit failures have been widespread at UK businesses in sectors ranging from hospitality to transport. The council has conducted investigations into PwC’s audits of contracting businesses Kier, Galliford Try and Babcock, all of which have revealed accounting errors in recent years.

Best source: Financial Times (subscription required)


Shareholders compel Amazon to conduct racial equity audit

Shareholders have pressured Amazon into commissioning an independent audit on the impact of racial differences on its close to one million hourly-paid employees in the US, headed by former attorney general Loretta Lynch. The company has faced complaints about its hiring practices and failure to protect warehouse staff, many of whom are black, prompting calls for a racial equity audit by investors led by New York state comptroller Thomas DiNapoli on behalf of the New York State Common Retirement Fund.

Best source: CNN


Coca-Cola manager who accepted £1.2m in bribes receives suspended jail sentence

Former UK Coca-Cola Enterprises manager Noel Corry has been given a 20-month suspended jail sentence for receiving £1.2m in bribes for leaking inside information that helped three companies win contracts with the bottling firm. Corry was responsible for the electrical and automation division of Coca-Cola Enterprises and in charge of outsourcing services.

Best source: Financial Times (subscription required)


UK financial regulators to investigate nickel contract trading disruption at London Metal Exchange

The UK's Financial Conduct Authority and the Bank of England have launched an investigation into disruption of trading on the London Metal Exchange after the invasion of Ukraine prompted the LME to freeze nickel contracts and suspend trading for eight days. Nickel prices had surged 250% to $100,000 per tonne, squeezing a big short position from Chinese trader Xiang Guangda and threatening smaller firms active on the exchange with bankruptcy. The regulators will examine the role of investment banks as well as market participants holding long positions.

Best source: Financial Times (subscription required)

See also: Reuters (registration required)


ExxonMobil joins other oil producers in suspending Russian projects

ExxonMobil has joined other fossil fuel producers in suspending operations in Russia and announcing plans to exit the market following the Putin regime's invasion of Ukraine. The US-headquartered group is cancelling a liquefied natural gas project, halting further investment and ultimately withdrawing from a country where it has assets worth more than $4bn.

Best source: Reuters (registration required)


Investigation into German real estate company finds evidence of misconduct

A preliminary report from a special investigation conducted by KPMG into German real estate company Adler Group does not appear to have refuted allegations of misconduct. Short-selling investment firm Viceroy Research accused Adler last year of inflating the value of its properties, failing to disclose certain transactions and other breaches of corporate governance. The summary report does appear largely to uphold the company’s portfolio valuations, with only limited differences in the value of Adler's development projects.

Best source: Adler Group

See also: Financial Times (subscription required)


Share price of UK digital marketing firm S4 Capital falls over fresh audit delay

The share price of S4 Capital, a UK digital marketing company launched in 2018 by advertising industry veteran Sir Martin Sorrell, who headed international industry leader WPP for three decades, fell from £4.74 to £3.10 after PwC announced a further delay to publication of the company’s 2021 accounts. The auditor did not give a reason for the delay, the second in less than a month. The initial delay was blamed on travel and resource issues at the auditor stemming from the Covid-19 pandemic.

Best source: The Guardian

See also: Evening Standard


Novartis to simplify structure to reduce costs

Pharmaceuticals group Novartis plans to integrate its pharmaceuticals and oncology businesses and separate its US and international commercial business operations to simplify its structure and save money. It expects the changes will generate savings of over $1bn by 2024, with improvements to sales as well as margins and value for shareholders.

Best source: Reuters (registration required)