Key Governance Developments - November 2020

Investors and fund managers face engagement dilemma as sustainability becomes business risk issue

Institutional investors are increasingly using their power as shareholders to push more companies and their boards toward embracing sustainable business models, or risk finding themselves eventually excluded from capital markets - at the same time that businesses, in Europe and beyond, face the obligation to report publicly on climate and other sustainability-related business risks arising from their activities. The trend is being encouraged by influential figures such as European Investment Bank president Werner Hoyer, who argues that it makes good economic sense for banks to end the financing of fossil fuel businesses, since otherwise they could have to write off stranded assets within the next 15 to 20 years. Lenders and fund managers and their boards increasingly face a dilemma, though: are they justified in maintaining investments in or lending to companies active in 'dirty' industries to encourage them to clean up?

ESMA begins consultation on ESG reporting by companies and asset managers


The European Securities and Markets Authority has launched a consultation on key performance indicators that companies and asset managers will be required to publish under the EU's taxonomy framework. Large listed issuers will have to report on the proportion of their turnover, capital and operational expenditure related to environmentally sustainable activities as defined by the taxonomy regulation. ESMA has also proposed indicators for asset managers, calculated according to the ratio of eligible investments that are aligned to the taxonomy. A review of the Non-Financial Reporting Directive could require a larger proportion of asset managers to report on their sustainable investment exposures.

Best source: Investments & Pensions Europe (registration required)

See also: European Securities and Markets Authority


Shareholders increase support for ESG resolutions at AGMs: Proxy Insight

The number of shareholder resolutions on social responsibility or environmental issues receiving majority backing at company general meetings worldwide has increased to 21 this year, up from 13 for the whole of 2019 and 2018 and just five in 2017, according to Proxy Insight. It says 233 social responsibility and environmental resolutions were voted on this year, with just over half receiving at least 20% support.

Best source: Financial Times (subscription required)


Net-Zero Asset Owner Alliance calls for halt to thermal coal investment

The UN-convened Net-Zero Asset Owner Alliance has published a position paper applicable to companies in the $5trn combined portfolios of its members, arguing that no further thermal coal power plants should be financed, insured, built, developed or planned, other than those already under active construction. The alliance says all pre-construction projects should be cancelled, including coal plants, mines and related infrastructure, and existing coal power stations should be phased out, in line with the Intergovernmental Panel on Climate Change 1.5°C global warming pathways.

Best source: Reuters

See also: Investments & Pensions Europe (registration required)


More US companies ignore shareholder votes on zombie directors: MSCI

Increasing numbers of US listed companies are ignoring shareholder votes to remove directors, according to a survey by MSCI of 2,313 constituents of the MSCI USA Investable Market Index. The survey reports that this year shareholders voted for the removal of 54 directors at 32 companies, including Netflix, but they nevertheless remain on the board. The number of so-called zombie directors was 40 four years earlier. Shareholders support directors in 95% of cases, so a vote for their removal can be a red flag prompting investors to examine companies further, according to MSCI ESG research executive director Ric Marshall. Binding resignation majority election standards have been adopted by only about 15% of US listed companies, while another 44% have plurality-based systems, where shareholders cannot vote against a particular director but only withhold their vote.

Best source: Financial Times (subscription required)

See also: ETF Trends

See also: MSCI

Irish regulator warns fund groups over ManCos’ staffing and risk management failings

The Central Bank of Ireland has warned asset managers to correct significant shortcomings in the governance of their Irish management company entities, saying a significant proportion of the country's 358 management companies have failed to comply with rules governing staffing levels, oversight and risk management imposed three years ago to make the sector more robust. Derville Rowland, director of financial conduct at the regulator, says the shortcomings observed in the €3trn fund sector are unacceptable amid pressure on Ireland's cross-border fund industry model. The European Securities and Markets Authority has proposed changes to EU rules on delegation, which allows funds' portfolio management to be undertaken outside the country in which they are domiciled.

Best source: Financial Times (subscription required)

See also: RTÉ News

See also: Funds Europe


ShareAction proposes legislation on fiduciary best interest duty in responsible investment

UK-based campaign group ShareAction has proposed legislation defining the best interests duty of fiduciaries for responsible investment. The group proposes expanding fiduciary duties to consideration of the impact of their decision-making on society and the environment, rather than simply the consequences of environmental, social impact and governance factors on the financial value of their portfolios.

Best source: Investments & Pensions Europe (registration required)
See also:
Pinsent Masons


Liechtensteinische Landesbank chairman steps down over insider trading probe

Liechtensteinische Landesbank chairman Georg Wohlwend has resigned after three years in charge because he has been placed under criminal investigation over suspected insider trading. Wohlwend denies the allegations, which are unrelated to his role at the bank. He will be replaced by vice-chairwoman Gabriela Nagel-Jungo. Liechtenstein's chief prosecutor, Robert Wallner, says the preliminary investigation was prompted by the country's financial regulator.

Best source: Finews

See also: WealthBriefing (subscription required)


Commission opens consultation on corporate law and sustainable governance

The European Commission has launched a consultation on improving the EU regulatory framework for company law and corporate governance to encourage businesses to focus on long-term sustainable value creation rather than short-term gains. The Commission says companies need to manage sustainability issues better, both in their own operations and value chains. The initiative, part of the Commission's European Green Deal blueprint and the EU's Covid-19 recovery plan, closes on February 8.

Best source: Responsible Investor (subscription required)

See also: European Commission

Ethnic diversity lagging on UK company boards, but more women are directors: executive search firm

The number of black, Asian and minority ethnic board directors on the boards of the UK’s largest listed companies averaged 8% over the year to the end of April, according to the latest annual report by Chicago-based executive search firm Spencer Stuart. The number of non-executive directors from non-white backgrounds has nearly doubled in five years, but the number of ethnic minority executive directors has halved to 2.6%, far lower than the 20% average for the top 200 US companies in the S&P 500 index. Spencer Stuart says women made up 34% of board members and 46% of non-executive directors, three times the level prior to the 2008-09 financial crisis, but they hold only about 13% of executive director positions and 5% each of board chairs and CEOs.

Best source: Financial Times (subscription required)

See also: Spencer Stuart