Key Governance Developments - October 2022

Governance is critical in holding companies to environmental and social commitments, say experts

Good governance is essential for funds that proclaim their adherence to environmental and social impact goals since it is critical for achievement of the intended impact, while poor governance frequently lies at the heart of social injustice and environmental catastrophes, Luxembourg Stock Exchange CEO Julie Becker has told the audience of Luxembourg of Finance's Sustainable Finance Forum. Respect or otherwise for human rights can also influence whether financial products are commercially successful, according to Cecilia Barral Diego, head of legal research at management consultancy Löning. Meanwhile Luxembourg-headquartered investment manager Candriam says shareholder votes in areas including executive remuneration as well as other environmental, social impact and governance matters are increasingly important to hold issuers of financial products to their climate change commitments.

Shareholder voting is ensuring companies adhere to climate action commitments: Candriam

Shareholders are increasingly using their voting rights to ensure that companies adhere to their climate change commitments, according to Luxembourg-headquartered investment manager Candriam. ESG analyst Sophie Deleuze-Duvielguerbigny says shareholders are increasingly voting on executive remunerations as well as other social impact, governance and environmental issues. Candriam representatives attend 1,200 company general meetings annually and vote on nearly 16,000 resolutions as part of its ESG focus.

Best source: Delano

Good governance is determining factor for success of ESG funds: stock exchange’s Julie Becker

Good governance is a vital component for funds that proclaim their adherence to environmental and social impact criteria since it is critical to achievement of the intended impact, according to Luxembourg Stock Exchange CEO Julie Becker, speaking at the Sustainable Finance Forum organised by Luxembourg for Finance. Despite the current market volatility, Prof. Dorothée Baumann-Pauly, who holds academic posts in Geneva, Zurich and New York, said research indicates that interest in sustainable finance is continuing to grow. Respect or otherwise for human rights can also influence the commercial success of a financial product, according to Cecilia Barral Diego, head of the legal research team at specialist management consultancy Löning.

Best source: Paperjam (in French)

French regulator warns companies against issuing convertible bonds with warrants

France's Autorité des Marchés Financiers has warned for the third time in two years about the risks of convertible bonds with warrants, which appeal to companies close to bankruptcy as a last-ditch means to raise cash and often leave investors with losses. The French regulator calculates that of 69 companies that have issued such bonds, 83% have seen their share price drop by an average of 72%, with some registering a decline as large as 90%. The AMF has warned companies against issuing the bonds and urged shareholders not to approve them.

Best source: Les Echos (subscription required, in French)

Shareholders file lawsuit against Adler Group to block planned asset sales

Munich law firm Martius, which is representing a group of shareholders of Adler Real Estate, has filed a lawsuit with the Berlin regional court to prevent the planned sale of up to 95% of the group's apartments in the city. Last week the Luxembourg-domiciled Adler Group announced its intention to sell 3,500 flats in Berlin to help reduce its debt, including €1bn in liabilities that fall due next year and €500m in maturing bonds. Adler owns 26,243 apartments, which were valued at €5.4bn at the end of June, and more than 70% of its properties are in Berlin.

Best source: Wort (in German)

Creos CEO Marc Reiffers dismissed for alleged breach of conflict of interest rules

Energy network operator Creos, a subsidiary of Luxembourg energy utility Encevo Group, has dismissed CEO Marc Reiffers for breach of its code of conduct, with chairman Mario Grotz taking over day-to-day management. The public prosecutor's office says Creos has informed it of a case of illegal conflict of interest but has declined to provide further details.

Best source: Paperjam (in French)

See also: Luxembourg Times

European Court of Justice may have to rule on competition guidelines affecting companies’ climate agreements

European Commission guidelines on anti-competitive sustainability agreements between companies to lower their carbon emissions are too restrictive, according to Martijn Snoep, chairman of the Dutch Authority for Consumers and Markets. He says businesses may need to challenge the guidelines before the European Court of Justice, or otherwise they and their boards of directors could face liability for harming consumers through higher prices or lower quality goods and services. The EU guidelines provide some safe harbour protection, Snoep argues, but they are too rigid and could result in regulatory penalties or prosecution if companies conclude agreements to reduce emissions, packaging or the use of toxic chemicals.

Best source: Financial Times (subscription required)

Shell CEO calls for UK to tax excess energy group profits to ease impact on households

Shell CEO Ben van Beurden says the UK government should impose a windfall tax on the excess profits of oil and gas companies to help protect households from higher energy costs, something Liz Truss's administration has so far refused to do. Van Beurden says a significant proportion of society will be at risk because the British government has chosen to fund a cap on prices through borrowing rather than an extra tax on profit, as in the EU. Hargreaves Lansdown senior investment analyst Susannah Streeter says the statement reflects Shell’s efforts to improve its ESG credentials, particularly its reputation for supporting social justice.

Best source: Sky News

UK supermarket group links executive pay to sustainability targets

The board of Tesco, the UK’s largest supermarket chain, has linked executive remuneration within the group to sustainability goals, including the halving of food waste in its operations by 2025. Other targets, including increased gender and ethnicity representation as well as carbon emission reductions, will determine 25% of the company’s executive performance share plan.

Best source: Retail Gazette

Trial of Swedbank’s former CEO Bonnesen over Estonia money laundering denial begins in Sweden

The trial of former Swedbank CEO Birgitte Bonnesen for denying the bank’s involvement in suspected money laundering transactions in Estonia has begun in Stockholm and is expected to last eight weeks. Bonnesen is accused of fraud for repeatedly providing misleading information to cover up deficiencies in AML controls at the group's branch in Tallinn that eventually led to Swedbank being fined a record SEK4bn in 2020. Bonnesen, who was CEO between 2016 and 2019, is facing up to six years in prison if convicted.

Best source: Reuters (free registration)

Many companies that own German real estate are foreign and do not identify ultimate owners

An estimated 20% of the companies registered as owning real estate in Germany do not identify their beneficial owners, according to data from the federal states of North Rhine-Westphalia, Lower Saxony, Saarland, Thuringia and Saxony. Many entities that hold real estate are themselves owned by companies in traditional offshore jurisdictions such as Cyprus, Switzerland or the Cayman Islands, prompting concern about tax avoidance or evasion, or money laundering. The proportion of foreign company ownership is as high as 50% in cities such as Dresden, Erfurt and Essen. To deal with the opacity problem, the government is planning to link the land registry’s database with its recently-enhanced transparency register, as well as outlawing cash purchases.

Best source: Welt am Sonntag (in German)