Key Governance Developments - October 2019

Pressure grows on companies over climate change impact reporting 

Central banks, regulators and politicians are increasing the pressure on financial institutions to report the impact of their investments and lending on climate change and environmental protection in general. More than one-third of the world's largest banks have not yet signed up to the Task Force on Climate-related Financial Disclosures initiative, including prominent institutions in Western Europe and the US. However, the trend is growing among asset managers to divest from companies active in extracting fossil fuels, as part of their own ESG commitments that in turn reflect investor pressure.

One-third of world’s largest banks fail to sign climate disclosure initiative

Twenty-eight of the world's 75 largest banks have not yet signed up for the Task Force on Climate-related Financial Disclosures initiative, which seeks to encourage companies to disclose their exposures to climate risk. Most of the laggards are Chinese, but the list of non-signatories includes Italy's UniCredit, France's Groupe BPCE, Germany's Commerzbank and Wells Fargo in the US.

Best source: Financial Times (subscription required)


Lyxor to exit coal and related investments

Lyxor Asset Management, the investment arm of the Société Générale group, says it is planning to sell its coal sector investments, including companies that derive more than 10% of turnover from coal mining, or more than 30% of electricity production from coal. The move is a central element in Lyxor’s climate strategy, alongside plans to introduce products focusing on environmental, social responsibility and governance criteria. Société Générale says it will withdraw from the coal sector in the EU by 2030, and in the rest of the world by 2040.

Best source: Private Banker International


German regulator publishes broad definition of sustainability risk

German regulator BaFin has published a broad definition of sustainability risk for the country's banks, including not only climate change issues, but also other environmental and social factors. The document says banks should take account of all environmental, social and governance risks, including those stemming from executive remuneration and protection for whistle-blowers that entail possible reputational damage.

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


UK investment body issues shareholder guidance on excessive executive pensions

The UK's Investment Association has issued new guidelines for institutional shareholders on voting for or against executive pension packages at companies they invest in. The Investment Association, which represents 250 asset managers and other institutional investors, says public companies with existing directors' pension contributions worth more than 25% of their salary will prompt the highest level of warning. The changes will apply from the 2020 annual general meeting season.

Best source: Financial Times (subscription required)


Renault sacks CEO Thierry Bolloré over Ghosn links

The board of French auto manufacturer Renault has voted to remove CEO Thierry Bolloré with immediate effect, possibly due to his close links to Carlos Ghosn, who headed the Renault-Nissan alliance. Nissan is believed to have been upset at Bolloré’s slow reaction to the arrest of Ghosn on charges of false accounting, and for his difficult working relationship with former Nissan CEO Hiroto Saikawa.

Best source: Reuters

See also: Financial Times (subscription required)


UK government seeks to claw back bonuses paid to Thomas Cook executives

A two-year limit on the clawback provisions in the contracts of senior management at failed travel group Thomas Cook will limit the UK government’s ability to demand the reimbursement of bonus payments. The government may only be able to claw back £1m, despite £20m having been paid in bonuses to board members and executives over the last three years. CEO Peter Fankhauser has not confirmed whether he intends to repay any of his bonus payments to offset the cost of repatriating holidaymakers or to compensate staff for the loss of their jobs.

Best source: The Guardian

See also: BBC News


French government accuses Dutch of creating imbalance in Air France KLM governance

France's State Shareholdings Agency has accused the Dutch government of creating an imbalance in the governance of the Air France KLM group after increasing its stake to 14%, equal to the French government's shareholding, in February. Martin Vial, head of the French agency, says the Dutch government should treat the airline like a normal listed company, and choose between holding a stake in the group or in its KLM subsidiary, but not both.

Best source: Bloomberg (subscription required)

Metro Bank chairman to leave at year-end amid investor pressure 

Vernon Hill, the founder of Metro Bank, will step down as chairman and leave the company’s board at the end of this year. The bank's share price has fallen by 89% since it revealed a major accounting discrepancy involving risk weightings for its lending portfolio, and is currently under investigation by UK regulators while struggling to attract fresh capital after a 250m-pound bond issue initially failed. If the bank were unable to raise new money, it would fall short of its minimum requirement for own funds and eligible liabilities of 21.5% for January 2020 set by the Bank of England. However, following the announcement of Hill's departure, Metro relaunched the bond with a higher yield of 9.5%, which was nearly 60% oversubscribed, and the bank's share price rebounded by 31%.

Best source: Reuters

See also: Risk (subscription required)

French regulator to focus on shareholder dialogue in governance issues

French regulator Autorité des Marchés Financiers says its campaign for improved governance will focus on a dialogue with shareholders. The emergence of activist shareholders in other countries has not been observed in France, and the regulator would like to foster greater engagement, according to Astrid Milsan, the AMF's deputy secretary-general for governance. The regulator is considering a new threshold of 3% for disclosure of a stake, and requiring shareholders with a 5% shareholding to declare their intentions.

Best source: Agefi (subscription required, in French)


UK regulator warns of stricter enforcement of peer-to-peer lending rules

Following the recent collapse of two major peer-to-peer lenders, Lendy and Collateral, the UK's Financial Conduct Authority has warned executives in the sector that it will intervene quickly and firmly if it detects non-compliance with regulatory requirements. Stricter rules coming into effect in December will place restrictions on marketing and impose heightened governance standards. The regulator says it has already launched reviews of firms in the sector, pinpointing failings especially in property lending.

Best source: Financial Times (subscription required)