Key Governance Developments - February 2023
Shell board members in NGO’s firing line for failure to act on sustainability issues

Board members are increasingly becoming the target of climate activists' campaigns that are calling companies to account for their progress (or lack of it) toward the sustainability transition. A UK environmental law group, ClientEarth, has launched a lawsuit against 11 directors of oil and gas group Shell, saying they are failing to act fast enough to reduce the company's carbon emissions by investing in alternative energy sources. The same group is suing the UK's financial regulator for failing to ensure that North Sea fossil fuel company Ithaca Energy’s IPO prospectus indicated the potential impact of climate risks on its business. However, Georgeson, an international proxy advisory firm, says European banks are leading the way on incorporating sustainability factors into the remuneration structures of CEOs and other executives, a practice followed by 95% of European institutions, compared with just 60% in North America.

Key Governance Developments

Environmental law NGO sues Shell directors over oil group’s climate strategy

Environmental law NGO ClientEarth has filed a lawsuit against 11 directors of Shell in England's High Court, claiming that the company’s strategy will not meet international climate targets and presents a risk to the group's future. It says the transition to clean energy is inevitable, but the directors are failing to act fast enough to bring about a reduction in emissions by investing in alternative energy sources. ClientEarth has a small shareholding in Shell and has gathered support from large pension funds and other institutional investors, including the UK's largest workplace pension scheme Nest, Sweden’s AP3 pension fund and Danske Bank Asset Management.

Best source: ClientEarth

See also: The Guardian

ClientEarth takes legal action against UK regulator over fuel company’s IPO disclosures

Environmental group ClientEarth has filed a legal action against the UK's Financial Conduct Authority over its approval of the prospectus for the listing of Ithaca Energy last year. It claims that the prospectus recognises the North Sea oil and gas company’s climate risks but fails to describe them properly or indicate what impact they could have on Ithaca's business. ClientEarth argues that the FCA is at fault for failing to detect the missing information, and that the company’s intention to develop new fossil fuel assets runs counter to the Paris Agreement goal of keeping global warming to less than 1.5℃.

Best source: ClientEarth

Nearly all European financial institutions link executive pay to ESG metrics: proxy adviser Georgeson

Proxy advisory firm Georgeson says 95% of European financial institutions now incorporate sustainability factors into the remuneration structures of CEOs and other executives, compared with just 60% at North American banks. In Spain, BBVA and CaixaBank link 10% of executives' annual bonuses to ESG metrics, whilst Santander and Banco Sabadell base their decisions on ESG net promoter scores – whether survey respondents would recommend the company's product or service. CaixaBank and Santander also link between 20% and 25% of long-term remuneration awards to sustainable measures.

Best source: El Economista (in Spanish)

Former CEO Braun denies fraud charges and claims to be victim of Wirecard’s collapse

Former Wirecard CEO Markus Braun has testified that he was not aware of fraud or embezzlement at the payment group he headed until its collapse in June 2020, describing himself as a victim rather than a perpetrator of crime. Braun has testified for the first time in the trial, where he is a defendant charged with fraud that led to Wirecard's collapse, with the company's former Dubai manager, Oliver Bellenhaus, also a defendant, accusing Braun of instructing him to falsify figures in the accounts.

Best source: Handelsblatt (subscription required, in German)

See also: Financial Times (subscription required)

See also: Reuters (free registration)

Luxaviation CEO Patrick Hansen appears in beneficial ownership register linked to 117 companies in past 16 years

Luxaviation CEO Patrick Hansen was named in the grand duchy's register of beneficial ownership in connection with 117 different companies domiciled in Luxembourg, the British Virgin Islands, Belize, the Bahamas and other countries around the world over the past 16 years, and financed the expansion of the private jet operator through investments linked to Russia. The register shows that Luxaviation acquired Belgium's Abelag Aviation in 2013 through a $20.5m five-year loan from Ackerfield Overseas, a company established in the British Virgin Islands whose ultimate beneficial owner is Alexander Kolikov, the son of Russian billionaire Valery Kolikov. Last year Hansen successfully appealed to the European Court of Justice when his request for ownership details submitted to the register to be kept confidential was rejected, leading to the temporary closure of the register after the court ruled that privacy considerations outweighed the principle of free public access to beneficial ownership data.

Best source: Investigate Europe

See also: Reporter (in German)

See also: Brussels Times

See also: RTL 5 minutes (in French)

Activist group accuses Shell of misleading investors over renewable energy spending
Activist group Global Witness has filed a complaint with the US Securities and Exchange Commission alleging that Shell is misleading investors about its investment plans for renewable energy. The group announced in February 2021 that it would spend up to $3bn per year on renewables and alternative energy solutions, including carbon capture and offsets, as well as hydrogen energy. Global Witness disputes Shell's claim that it spent $2.4bn in 2021, claiming the actual amount was just $288m.

Best source: Reuters (free registration)

See also: The Guardian

Market value of Adani business empire plunges following US shortseller’s allegations of fraud
The market capitalisation of the business empire of Indian entrepreneur Gautam Adani has continued to plunge in the wake of a report by US short-selling firm Hindenburg Research alleging widespread accounting shortcomings as well as fraud within the group's network of companies. The companies have so far lost more than $100bn in value, and Adani was obliged to cancel a planned share offering that was intended to raise $2.5bn for his flagship company, Adani Enterprises, because investors were set to record an instant 30% loss as a result of the share price plunge. The shares of Adani Enterprises dropped by a further 25% on February 2, while equity in six other listed companies belonging to the group fell by a further 5% to 10%. Adani has accused Hindenburg Research of conducting an attack on the entire Indian economy. The Securities and Exchange Board of India is reported to be examining the share price declines as well as any possible irregularities in the abortive share sale, while the Reserve Bank of India has asked lenders for details of their debt exposure to the Adani group.

Best source: Wall Street Journal (subscription required)

See also: Wall Street Journal (subscription required)

See also: Reuters (free registration)

See also: CNN

UK regulator to scrutinise auditors’ monitoring of corporate ESG disclosures
The UK's Financial Reporting Council will monitor whether auditors are verifying companies' compliance with sustainability reporting requirements during their audits. It will focus on the link between ESG data use, investors and reporting to improve transparency and understanding of risks and opportunities. The regulator will also carry out internal checks on auditors as they undertake work on behalf of client companies, and require actuaries to incorporate climate and other ESG risks into their assessments. The UK Corporate Governance Code will be updated this year to reflect the requirement for ESG reporting by companies' boards.

Best source: Reuters

European companies expect increase in hedge fund shareholder activism in coming year
Some 68% of European managers expect an increase in shareholder activism in the coming 12 months, with 40% anticipating a significant increase, according to a poll by law firm Skadden and consulting company Activistmonitor. Companies see the greatest activism coming from US- and UK-based hedge fund firms that take stakes in listed groups in order to push for a change in strategy. Investment bank Lazard has counted 235 new activist campaigns launched in 2022, an increase of 36% from the previous year, with Bayer, Vodafone, Unilever and German medical services company Fresenius among recent targets.

Best source: Handelsblatt (subscription required, in German)

Food industry needs clear definitions for regenerative agriculture: Food and Land Use Coalition
The food industry, especially large and multinational food producers, need a clear definition of regenerative agriculture in order to avoid making misleading claims to consumers and investors about their environmental credentials, according to London-based campaign group Food and Land Use Coalition. Whilst European multinationals such as Unilever and their US peers have various measurement frameworks in place, methodologies can be opaque and comparison difficult. It says outcome-based frameworks for measuring and assessing regenerative agriculture practices are necessary to ensure that projects and corporate strategies are aligned, and to avoid confusion as well as greenwashing and misuse of regenerative agriculture labels by food producers.

Best source: Food Navigator

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Fiduciary duties and governance post-SFDR implementation
By Olivier Carré