Key Governance Developments - September 2022

Discover our latest Key Governance Developments

Introduction

European banks increase their share of women board members but executive diversity remains elusive

Gender diversity is improving at board level within European banks, but lagging behind in executive leadership positions, according to DBRS Morningstar. Only five of 43 European institutions surveyed by the rating agency had a female CEO last year, and just four banks had a female board chair. The firm says that while women occupied 37% of board seats, only 26% of executive management positions were held by women. Predictably, the proportion of women board members was highest in the Nordic countries - Denmark 55%, Norway 50% and Sweden 48% - but in Germany the ratio was 29% and in Portugal just 23%. DBRS Morningstar says the example of Nationwide and DNB suggests that banks most ready to promote women to executive positions are also more likely to appoint a female CEO.


Key Governance Developments

German court accepts 474-page indictment of former CEO Braun and two others over 2020 Wirecard collapse

The Munich state court has accepted the indictment against former Wirecard CEO Markus Braun, accusing him and two others of falsifying accounts, manipulating markets, embezzlement and commercial fraud. The court took six months to review the indictment, which runs to 474 pages. Its decision has paved the way for scheduling what will be one of the biggest business trials in postwar German history for the beginning of next year. The indictment also charges former chief financial officer Stephan von Erffa and Dubai representative Oliver Bellenhaus in connection with the collapse of the payment group in 2020. The defendants face up to 10 years' imprisonment if convicted.

Best source: Handelsblatt (subscription required, in German)

See also: Reuters (free registration)


Women remain under-represented in senior European banking posts: DBRS Morningstar

Women occupied just over a quarter of European banking executive posts and 37% of board positions last year, up from 20% and 35% respectively in 2020, according to DBRS Morningstar. In Denmark, women account for 55% of board positions, but in Germany the figure is only 29% and in Portugal just 23%. The survey finds only five institutions — NatWest and Nationwide in the UK, Norway’s DNB, Handelsbanken in Sweden and Bank of Ireland — which had female CEOs in 2021, although it did not cover Luxembourg, where Colette Dierick headed ING up to June this year and Françoise Thoma has been CEO of Banque et Caisse d'Épargne de l'État since 2016.

Best source: Financial Times (subscription required)

See also: Bloomberg (subscription required)

See also: DBRS Morningstar


CSSF expected to enforce SFDR classification rules strictly: Arendt fund experts

Asset management firms that fail to apply fund classifications under the EU's Sustainable Finance Disclosure Regulation risk reputational damage and can expect to be fined or otherwise penalised by financial regulators, according to Isabelle Lebbe, a partner in the investment management practice at law firm Arendt & Medernach. She notes that Luxembourg's CSSF has stated clearly that it will ensure the directive is fully enforced. Stéphane Badey, a partner at sister firm Arendt Regulatory & Consulting, says firms will need to be careful to avoid accusations of greenwashing from investors and NGOs keeping a close eye on their product offerings. He argues that while, perhaps inevitably, classification under articles 8 and 9 has become a label for funds, within six months the focus will have shifted to categories such as taxonomy-aligned and sustainable investment products, and principal adverse impact consideration.

Best source: Delano


ECB may conduct on-site post-Brexit checks on banks establishing EU entities

The European Central Bank may conduct on-site inspection of banks as part of its post-Brexit desk-mapping review. The central bank has been monitoring international banks to ensure they are not circumventing rules governing access to the single market, and that they have appropriate risk management, resources and governance structures in place for cross-border business with non-EU countries. The ECB found in May that some banks did not have a satisfactory local trading presence in their newly-established entities in the eurozone, and that the risk that groups were creating shell structures was a significant concern.

Best source: Financial News (subscription required)



US listed companies have stepped up boardroom diversity since 2020: ISS

US listed companies have been making measurable progress since 2020 on making their boards of directors more racially and ethnically diverse, amid an ongoing debate in Washington over whether they should be required to disclose the demographic makeup of directors, executives and employees, according to proxy adviser Institutional Shareholder Services. The firm's ISS Governance Solutions division says all companies that are members of the S&P 500 equity index have at least one racially or ethnically diverse director, compared with a proportion of non-diverse S&P 500 boards of 11% in 2020 and 5% last year. In addition, around 90% of Russell 3000 index constituents had at least one director who identified as a minority this year, up from 73% in 2021 and 70% in 2020. Around 55% of listed companies had two or more diverse directors in 2022, nearly doubling from 29% two years earlier.

Best source: Roll Call


Missouri attorney-general investigates Morningstar over possible law violations involving ESG ratings

Missouri attorney-general Eric Schmitt has launched an investigation into Morningstar over its environmental, social impact and governance ratings, on suspicion that they could violate the state's consumer protection legislation. The inquiry also covers possible violation of another state law protecting business with Israel, amid concern that ESG rating products might have overstated risks of doing business in the country. More than 30 states have similar laws, but this is the first investigation of possible breaches arising from ESG ratings. Schmitt last month won the Republican state primary for the US Senate election in November.

Best source: Reuters (free registration)


Royal London CEO says energy price surge may undermine companies’ ESG commitments

UK life insurer and asset manager Royal London CEO Barry O'Dwyer argues that many of the companies it invests in may need to backpedal temporarily on their sustainability policies in the short term due to the soaring price of gas in Europe. He says Royal London would not take a quick decision to divest, but might need to talk with the management of companies in this position to understand how they plan to return to a strategy targeting net zero emissions.

Best source: Reuters (free registration)


Multinational groups face difficulties embedding ESG factors into compliance processes: law firm

Sustainability risk is an existing or future priority for 82% of 600 multinationals surveyed by law firm Hogan Lovells, with many concerned about how to integrate ESG factors into their compliance processes. According to its report, Navigating Deep Waters, respondents perceive sustainability risks to supply chains and third-party relationships as lower, with just 1% believing that third parties pose a greater ESG risk at present.

Best source: Global Legal Post

See also: Hogan Lovells


Sustainability-linked corporate loans could improve accountability and lower banks’ ESG risks

Growing demand by businesses for sustainability-linked loans and credit facilities could increase their accountability and transparency as they strive to meet transition and emission targets. Issuance of debt where the interest paid is contingent on meeting ESG performance criteria has grown from $4.9bn in 2017 to nearly $500bn last year. Banks say that incorporating sustainability metrics into loan conditions can help lower the cost of finance and lower their own indirect exposure to ESG risks.

Best source: Bloomberg (subscription required)