Key Governance Developments - February 2021

Investors step up pressure on companies over climate change reporting

Institutional investors are again stepping up pressure on companies that they believe are not doing enough to tackle climate change and curb greenhouse gas emissions or pollution of the environment. The world's largest asset manager, BlackRock, is taking the fight to fossil fuel companies in which it invests, demanding that they disclose the full climate impact of their products, from extraction to end-use. The UK's Investment Association has also announced that its proxy advice service will highlight companies that are failing to report adequately on climate risks under the Task Force on Climate-related Financial Disclosures framework, increasing the likelihood that investors may vote against directors or approval of accounts at annual general meetings.

Institutional investors concerned about EU sustainability governance rules

Institutional investors have expressed concern about the EU’s plans to introduce sustainability governance rules for companies. The European Sustainable Investment Forum says a legal framework for supply chain due diligence regarding human rights and environmental issues must be proportionate, arguing that smaller companies have a smaller impact than large corporate groups. The European Fund and Asset Management Association has called for simplified reporting requirements for small and medium-sized asset managers.

Best source: Investments & Pensions Europe (registration required)


UK directors to be personally liable over accuracy of companies’ financial statements

Directors of UK companies may be held personally responsible for the accuracy of companies' financial statements, and face fines or temporary bans for major failures, under proposals to reform the country's corporate governance and audit rules. The review, prompted in part by the failure of auditors to detect false accounting or other discrepancies at companies including Carillion and Patisserie Valerie, is expected to include the introduction of rules similar to the US Sarbanes-Oxley Act, introduced in response to the collapse of Enron. The changes would make directors rather than boards collectively liable for the accuracy of financial statements through the sign-off of internal controls and risk management as part of their duties to uphold corporate reporting and audit standards.

Best source: Financial Times (subscription required)

See also: Reuters

BlackRock calls on oil companies to reveal carbon emissions


BlackRock has called on oil companies and other major producers of greenhouse gases to publish their carbon emissions and establish targets to reduce them. All companies whose shares are held by BlackRock in its portfolios will be required to disclose their scope 1 and 2 direct emissions, and the asset manager says fossil fuel extractors should also publish scope 3 emissions data covering the combustion of their products.

Best source: The Guardian


UK asset managers’ organisation to spotlight inadequate corporate climate reporting

The UK's Investment Association plans to publish the details of listed companies that fail to meet the reporting framework requirements laid down by the Task Force on Climate-related Financial Disclosures. The association’s Ivis proxy advice service will issue amber warnings to companies deemed to be lagging in tackling climate change, which could prompt investors to vote against board members or approval of accounts at annual general meetings.

Best source: Financial Times (subscription required)


Norges Bank Investment Management backs EU sustainable corporate governance proposals

Norges Bank Investment Management has backed proposals by the European Commission to introduce sustainable corporate governance measures, but questions whether it is practical to impose fixed levels of relevant ESG experience for companies' board members to help improve governance. The asset manager says voluntary due diligence standards have not met expectations and that greater EU harmonisation would help, including on cross-border voting and streamlining filing processes for shareholders.

Best source: Investments & Pensions Europe (registration required)


China tightens corporate governance rules to prioritise party leadership and ESG factors

The China Banking and Insurance Regulatory Commission has released draft rules under which state-owned bank and insurance institutions must give priority to business decisions by the Communist Party before they consult their boards and executive leadership. The rules also limit the number of independent director roles held by a single individual, and promote the incorporation of sustainability factors into governance decisions.

Best source: Reuters


Aareal Bank links management board bonuses to sustainability targets

Wiesbaden-based Aareal Bank has decided to link future executive bonus pay to the bank's adherence to environmental, social responsibility and governance targets, following the example set by Deutsche Bank. At least 15% of the variable remuneration of each member of the management board will now depend on meeting the targets.

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

Google faces scrutiny over dismissal of artificial intelligence ethics team members

Staff at Google have complained about the company’s actions after it dismissed scientist Margaret Mitchell, the second member of the company's artificial intelligence ethics team to be ousted after AI ethics researcher Timnit Gebru. Google claims Mitchell transferred electronic files outside the company in breach of its rules, but critics say she and Gebru may have been fired because they called for greater diversity and inclusion in the company’s research teams. They also demanded that Google not censor research studies that are critical of its products, including a paper by Gebru arguing that AI language algorithms could marginalise certain communities.

Best source: Reuters


UK publishes climate risk governance proposals for pension funds

The UK government has launched a consultation on draft mandatory climate risk governance requirements that are due to be introduced by larger pension funds by October this year. It will review in 2023 whether smaller funds with assets of less than £1bn should also be required to comply. Following an earlier consultation on initial proposals last year, pension fund trustees will be required to conduct scenario analysis once every three years rather than annually, and trustees must have an appropriate degree of knowledge and understanding of the principles of identifying, assessing and managing climate change risks and opportunities.

Best source: Investments & Pensions Europe (registration required)


SoftBank executives could receive $1.2bn thanks to share purchase loans

Four executives at SoftBank could bank as much as $1.2bn in gains after being granted $600m in loans from the company to buy its shares. SoftBank Vision Fund CEO Rajeev Misra and SoftBank chief operating officer Marcelo Claure could receive almost $500m each because the company’s share price has rallied since the loans were granted. Misra, Claure and another executive resigned from SoftBank’s board in November after pressure from activist investor Elliott Management, meaning that the company may not need to disclosure their remuneration and company borrowing in future.

Best source: Financial Times (subscription required)