Key Governance Developments - March 2022

Introduction


Investors and companies respond to Russia’s attack on Ukraine as ESG questions grow

Russia’s invasion of Ukraine has prompted soul-searching for companies facing a dilemma about their business activities in Russia and with its nationals, even if the relationships are not directly covered by sanctions. Most are distancing themselves from corporate partners in Russia and downsizing or seeking to sell their own direct operations in the country, in some cases after more than two decades of activity. Where possible, ESG investors are unwinding their exposure to Russia in the face of sanctions as well as the suspension of securities trading, as well as to protect their own reputations. Critics, though, are questioning why past Russian actions such as the invasion of Georgia in 2008, the seizure of Crimea from Ukraine in 2014 and the mistreatment of regime opponents had not disqualified the country from ESG investment already.


Key Governance Developments

 

Rebel shareholders’ rival executive team unveils new strategy plan for Generali

A rival Generali management team has unveiled a plan for the Italian insurer that promises higher earnings growth and more dealmaking. The strategy has been proposed by the group's head of Austria and central Europe, Luciano Cirinà, together with Claudio Costamagna, a former Goldman Sachs banker who has been proposed by leading Generali shareholder Francesco Gaetano Caltagirone as the insurer’s new chairman, with Cirinà as CEO. The plan targets 14% earnings growth over three years along with mergers and acquisitions totalling as much as €7bn, notably in India and China. Cirinà has been suspended by Generali with immediate effect.

Best source: Financial Times (subscription required)


Number of institutions signed up to UK Stewardship Code increases to 199

A total of 199 institutions have now become signatories to the UK Stewardship Code, operated by the Financial Reporting Council. The code sets out guidelines on how investors should interact with the companies they invest in and communicate with. The FRC says 105 applications were received in the latest window, more than expected, and that 74 were successful, including BMO Global Asset Management, Insight Investment and Morgan Stanley Investment Management.

Best source: Financial Reporting Council


Mirova CEO accuses industry of weak response over Russian invasion

The initial responses by bodies such as UN Principles for Responsible Investment and the European Fund and Asset Management Association to the invasion of Ukraine and Russia were weak, according to Mirova CEO Philippe Zaouati. He says the fund industry should be more vocal and decisive because otherwise responsible investment is not real. He also says Mirova has no Russian exposure, meaning it has no leverage to tell other managers what to do, and that exposure to Ukraine is not the same thing, as some clients appear to think.

Best source: Citywire Selector


US fossil fuel companies suggest they are better ESG bet than Iran or Venezuela

US oil and gas companies are lobbying the government and other stakeholders to suggest they have better ESG credentials than Iran and Venezuela, following the sanctions imposed on Russia due to the invasion of Ukraine. They say that replacing supplies with fuel from Iran or Venezuela would be a step backwards from the ESG demands of consumers, politicians and investors.

Best source: Argus Media


Toshiba faces shareholder vote over rival plans to restructure company

Shareholders in Japanese conglomerate Toshiba will vote on a proposal promoted by activist shareholders who are seeking to break up the company. The investors are seeking a sale of the group as a whole or parts of its business, whilst a counter-proposal from Toshiba’s management suggests a restructuring that would split off its infrastructure and devices businesses.

Best source: Electronics Weekly

Fund managers say they are looking to sell Russian assets on ESG grounds

Asset managers including Abrdn, Storebrand, DWS and Nordea are attempting to sell their Russian assets as sanctions take effect. Abrdn and Storebrand say they are divesting on ESG grounds, despite the existence of long-term concerns about governance issues in Russia. The asset managers are struggling to carry out their planned divestment with the Moscow Exchange closed, while Russia has adopted a temporary ban on foreign investors selling securities. The ban on some major Russian banks using the SWIFT payment messaging network is also likely to make it hard for fund managers to receive any proceeds from asset sales. Fund managers also face criticism for holding Russian stocks before the invasion, given the country's poor record on human rights, corporate governance and the oligarchs' hold over large parts of the economy.

Best source: Pensions & Investments (registration required)

See also: Citywire (registration required)


UBS cuts executive bonuses following Archegos losses

UBS has granted a CHF11.5m bonus to new CEO Ralph Hamers for his first 12 months in the job, less than the CHF13.2m that his predecessor Sergio Ermotti received for 10 months of 2020, despite the bank posting its best annual profit since 2006 and increasing its total performance-based bonus pool by 10%, from $3.3bn to $3.7bn. The bank says the package was lower due to the $861 lost by UBS's prime brokerage business after the collapse of family office Archegos Capital Management. The executive board as a whole received compensation totalling CHF107.8m last year, down from CHF115.9m in 2020.

Best source: Reuters (registration required)


EU ombudsman to investigate revolving doors allegations over ECB economist

European Ombudsman Emily O’Reilly has opened a case investigating revolving doors – public officials moving to private sector sector businesses with which they may have had dealings – at the European Central Bank. Jens Eisenschmidt, who stepped down as ECB lead economist in January, issued a briefing note to clients for his new employer Morgan Stanley that mentioned policy positions in which he may have been involved. That suggests the cooling-off period between leaving the ECB and joining Morgan Stanley may have been too short.

Best source: Politico


Significant divergence identified in credit rating agencies’ ESG disclosures: ESMA

The European Securities and Markets Authority has found that rating agencies are failing to include environmental, social impact and governance factors consistently in their public statements about rated companies, based on analysis of 64,000 press releases issued by agencies in 2019 and 2020. The EU regulator says the overall level of disclosure has improved since ESMA introduced guidelines in March 2020, but there is still significant divergence both between rating agencies and ESG factors, especially regarding the environment, including for rated entities that are highly exposed to ESG factors relative to their peers.

Best source: Handelsblatt (subscription required, in German)

See also: European Securities and Markets Authority