Key Governance Developments - June 2024
Pressure from investors grows on companies to incorporate climate performance into executive remuneration
BNP Paribas Asset Management has become the latest institutional investor to insist that the companies in which it invests should incorporate their climate protection performance into executive compensation plans, as part of its 2024 Governance and Voting Policy. It will now require companies in the energy, utilities, industrials and materials sectors, as well as others identified as high greenhouse gas emitters, to integrate a climate component that is measurable, quantifiable and relevant to the company's sustainable development strategy into executive remuneration policies. BNP Paribas AM, which plans to extend the requirement to all companies by 2026, says that this year it opposed 36% of portfolio company annual general meeting resolutions, including 2,163 management proposals at 332 companies, for environmental and social reasons, with 79% of decisions to oppose stemming from climate or biodiversity-related expectations. The asset manager says companies' performance has improved since 2023 but it opposed as many AGM resolutions as the previous year because its expectations have increased.

BNP Paribas Asset Management to press companies to incorporate climate goals into executive pay plans
BNP Paribas Asset Management has updated its corporate governance and portfolio company voting policy, requiring companies it invests in to integrate climate-related criteria into their executive remuneration plans. The change covers the energy, utilities, industrials and materials sectors, as well as other companies it identifies as heavy emitters of greenhouse gases. The requirement will be extended to all companies from 2026.
Best source: ESG Today

Shortage of expertise in AML compliance could dent reputation of Luxembourg banks: PwC Luxembourg report
Luxembourg banks are struggling to attract and retain employees with expertise in compliance with anti-money laundering rules, which could lead to some institutions receiving penalties and causing reputational damage to the sector as a whole, according to a report by PwC Luxembourg. The authors also say that the sector is at risk of over-reliance on artificial intelligence solutions for AML compliance. Luxembourg's banking sector comprised 117 institutions with an aggregate balance sheet of €957bn at the start of March.
Best source: Wort
See also: Investment Officer (subscription required)
See also: Luxembourg Chronicle
See also: PwC Luxembourg

Morgan Stanley joins Goldman Sachs in scrapping UK bonus caps
Morgan Stanley is removing the EU-imposed ceiling on bonuses for employees in the UK, a move already announced by Goldman Sachs. Following Brexit and the end of the legal bonus cap requirement in the UK, shareholders at HSBC and Barclays have also voted to increase limits on bonuses paid to some of their employees. JPMorgan will adopt an internal cap of 10 times salary and retain a fixed allowance for senior risk-takers, while Goldman is increasing its internal bonus limit to 25 times salary.
Best source: Financial News (subscription required)

Investment consultancy questions static hurdle rates for hedge and private market funds as risk-free returns increase
Asset management firms are under scrutiny for maintaining static fees despite benefiting from higher interest rates, according to a report by investment consultancy bfinance. The authors say managers of hedge funds and private market investment vehicles have not adjusted their hurdle rates despite higher risk-free rates, resulting in a higher percentage of overall returns going to the fund's general partner. The report also identifies an increase in sustainability-related spending and points to a disparity in views between asset owners and managers on the impact of ESG costs. The firm argues that investors would benefit from improvements in fee transparency as well as cost-saving measures on the part of asset managers.
Best source: Investment Week

EU regulators propose changes to SFDR to simplify and clarify sustainable fund labels
The three European Supervisory Authorities have proposed wide-ranging changes to simplify and clarify labelling of sustainable investment products to provide investors with more useful information and to curb greenwashing. Their proposals include designating a distinct category of transition financial products, alongside a sustainable category, and providing a sustainability indicator to enable investors to assess funds. The EU regulators say the current rules, which are under review by the European Commission, are complex and hard to understand, with the current Sustainable Finance Disclosure Regulation article 8 and article 9 categories misused as labels since their introduction in 2021.
Best source: Reuters (free registration)
See also: European Securities and Markets Authority

North American company shareholders overwhelmingly vote down anti-sustainability resolutions: Harvard Law School
A study conducted by the Harvard Law School Forum on Corporate Governance has found that shareholders in North American companies have overwhelmingly declined to support anti-ESG resolutions, despite an increase in motions proposed at annual general meetings so far this year. Proposals relating to disclosure of greenhouse gas emissions and companies' decarbonisation plans received greater support from shareholders at smaller companies.
Best source: Harvard Law School Forum on Corporate Governance

Lack of sufficient board capabilities can be source of problems at big banks such as Credit Suisse: think-tank
The near-collapse of Credit Suisse last year has demonstrated how inadequate board supervision can lead to management problems at big European banks, according to a report from the London-based think-tank Centre for Economic Policy Research. Appointments to the Credit Suisse board in 2015, researchers say, included experts in unrelated fields who lacked the ability to supervise the bank's extensive operations properly, although Swiss regulator Finma approved all senior appointments at the bank. The report also argues that German regulator BaFin was reluctant to enforce the requirements of 2009 national legislation on board members' capabilities, resulting in the law having little practical effect.
Best source: Centre for Economic Policy Research

Backers of new Texas Stock Exchange raise $120m in bid to challenge NYSE and Nasdaq
A new national stock exchange based in Texas and backed by BlackRock and Citadel Securities has raised $120m in a bid to challenge the New York Stock Exchange and Nasdaq, believing that it can enjoy a competitive advantage because of costs at the two New York-headquartered trading platforms. The exchange, which has appointed James Lee as CEO and plans to register with the Securities and Exchange Commission this year, is being established in response to increased compliance costs as well as rules seen as burdensome, such as Nasdaq's targets for board of directors diversity. Texas has become the headquarters of more Fortune 500 companies than any other state.
Best source: Wall Street Journal (subscription required)
See also: Bloomberg

Riot Platforms criticises Bitfarms over poison pill response to takeover offer
US bitcoin mining firm Riot Platforms has attacked rival Bitfarms for preparing a so-called poison pill defence to Riot's unsolicited takeover offer, worth nearly $1bn. Bitfarms has rejected the offer made in April and claims it represents an undervaluation, while Riot has urged Bitfarms shareholders to remove its chairman and interim CEO, Nicolas Bonta, and to appoint at least two independent directors to the board. If adopted, the poison pill strategy would see Bitfarms issue fresh equity to other shareholders in the event that Riot acquires a stake in the business exceeding 15%.
Best source: The Block

Morningstar Sustainalytics upgrades ESG risk rating methodology for 16,000 companies
Morningstar Sustainalytics has upgraded its ESG risk ratings methodology that covers over 16,000 companies worldwide. It has improved the process for corporate governance assessment, making it easier to use and interpret data on issues such as board independence and shareholder voting structures. The ESG data provider is also boosting its material risk measures to include raw material usage, water, data privacy and cyber-security. The process of incorporating the new metrics for all companies covered by Sustainalytics will be complete by September.
Best source: Morningstar Sustainalytics

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