Key Governance Developments - March 2024
EU member states vote in favour of watered-down Corporate Sustainability Due Diligence Directive
EU member states have agreed on a revised draft of the Corporate Sustainability Due Diligence Directive, which has been criticised by several non-profit organisations for offering too many concessions to large businesses in order to win agreement from countries including Germany and Italy. Campaign group Oxfam says that the weakening of the provisions of the directive, which is meant to hold large companies accountable for human rights or environmental violations in their supply chains, undermines the EU's aim to be a leader in due diligence. The latest draft stipulates that the legislation would apply only to companies with more than €450m in worldwide turnover, as well as deleting civil liability provisions that would allow trade unions to sue non-compliant businesses, a provision heavily contested by member states including Finland. The directive must still be approved by the European Parliament next month, the last opportunity to do so before EU elections in June. Earlier this month, Luxembourg was one of 12 EU members that refused to vote on an earlier draft of the legislation, arguing that it placed too great an administrative burden on companies.
Best source: Luxembourg Times
See also: Euronews
See also: ESG Today
See also: BBC News

Julius Bär denies executive bonuses for 2023 following Signa property lending losses
Julius Bär has cut the bonuses for 2023 of former CEO Philipp Rickenbacher and other executives after the bank suffered CHF586m in losses on its lending exposure to collapsed real estate group Signa Holding. Rickenbacher will receive only his basic pay of CHF1.7m, down from CHF6m, including bonuses, the previous year. A further five executives will not receive any bonuses for 2023 since they were all directly involved in credit decisions. Meanwhile, European Banking Authority chairman José Manuel Campa has warned that banks will be affected by the impact of a slump in the commercial real estate market for several years, with specialised lenders experiencing the greatest difficulty.
Best source: Handelsblatt (in German)
See also: Citywire

Fund management firms must improve interaction with investors: independent director Gordon-Hart
Asset managers must improve the way they interact with investors, with just 38% of the largest managers of investment funds domiciled in Luxembourg having adopted a corporate governance code, according to Sheenagh Gordon-Hart, a partner in The Directors’ Office. She told participants at last week's Alfi Global Asset Management conference that the role of independent fund board members is to engage with asset management firms on behalf of investors, although increased regulatory requirements, such as those stemming from the EU's Sustainable Finance Disclosure Regulation, have added to directors' administrative burden.
Best source: Delano

Deutsche Bank links executive pay to lending decarbonisation strategy
In an update to its long-term incentive plan for board members, Deutsche Bank has linked senior executive remuneration to the bank’s strategy for decarbonisation of its corporate lending portfolio. As well as the link to its reduction targets for financed emissions, pay will also be correlated to gender diversity and various governance performance indicators.
Best source: ESG Today

Policymakers and regulators should examine green and sustainability-linked bond promises: Harvard Law School researchers
The market for sovereign and corporate sustainable use of proceeds and sustainability-linked bonds has grown significantly in recent years but investors may be unwilling to pay premiums for such debt because of concerns about the credibility of issuers’ green commitments or poor market liquidity, according to the Harvard Law School Forum on Corporate Governance. Drawing on data from the OECD’s first Global Debt Report, it found no statistically significant evidence that companies or probably the public sector benefit systemically from the issue of sustainable bonds. The forum suggests that policymakers, regulators and academics should focus on analysing bond performance targets and the level of their ambitions in order to develop the market and protect investors. It also raises questions about whether bonds with lower targets should be considered conventional bonds, or whether central banks without sustainability goals should buy any green bonds via their asset purchase or foreign reserve programmes, given the low level of market liquidity.
Best source: Harvard Law School

Asset managers increasingly excluding tax-risk companies from their portfolios
Asset managers are increasingly avoiding investment in companies that adopt aggressive tax planning strategies, according to Eszter Vitorino, Van Lanschot Kempen’s lead expert for environmental, social impact and governance advisory. She says that the Dutch wealth manager considers tax-related risks in determining companies to exclude from its portfolios, although she says some firms with low tax liabilities are unaware that they are raising red flags with the authorities. Other asset management firms that also exclude companies that pose tax risks from their portfolios include Federated Hermes, Robeco Institutional Asset Management and Natixis Investment Managers' ESG investment business Mirova. They say tax liabilities amounting to less than 15% of net profit are now a sign that the companies’ accounts need to be reviewed at the very least.
Best source: Bloomberg

Banks in Europe spent more than $80bn on compliance with financial crime rules in 2023: Lexis Nexis Risk Solutions
Banks in Europe, the Middle East and North Africa spent a total of $85bn on compliance with legislation designed to curb financial crime in 2023, according to a study by Lexis Nexis Risk Solutions. The data services firm attributes nearly $33bn to compliance spending in Germany, $25bn in France, $12bn in the Netherlands, and $10bn in Poland. The worldwide survey questioned nearly 1,200 executives in compliance departments, including 482 in nine EMEA markets, also comprising the Baltic states, Kenya, Saudi Arabia, South Africa and the United Arab Emirates.
Best source: Börsen-Zeitung (subscription required, in German)

EU Corporate Sustainability Due Diligence Directive is dead in current form: Democratic Party MEP
Charles Goerens, a European Parliament member for Luxembourg's Democratic Party, says the EU’s proposed Corporate Sustainability Due Diligence Directive looks doomed in its present form after the threat of mass abstentions by EU member states led to a fresh postponement of an EU Council vote scheduled for March 8. Despite the proposed legislation being watered down by the Belgian presidency of the council, the compromise text failed to receive sufficient support to move forward under the EU’s qualified majority voting system. Luxembourg was one of 12 EU member states that were not prepared to vote in favour of the legislation, arguing that the directive should not place too great an administrative burden on companies. Goerens says that although a fresh attempt to hold a vote has been pencilled in for March 15, time is now running out for the legislative process to be completed ahead of European Parliament elections in June.
Best source: Luxembourg Times (subscription required)

Investors in Zara parent group call for publication of full supplier list
Investors in Inditex, which owns Zara and other international fast fashion brands, have called on the group to publish a full list of its suppliers and their clothing factories in order to assess supply chain risks including forced labour. H&M and Primark have already begun to publish supplier lists, as do Adidas, Hugo Boss, UK retailer Marks & Spencer, Nike and Puma. Dutch pension fund administrator and asset manager MN and other members of the Platform Living Wage Financials group say extensive data is needed for their own due diligence and to ensure that garment and footwear factory workers receive fair remuneration, but complain they have not seen a significant shift by Inditex despite three years of engagement.
Best source: Reuters (free registration)

More than a quarter of senior Luxembourg financial sector jobs held by women at companies committed to increased diversity
Around 28% of senior executives at financial sector companies that have signed up to the Luxembourg Women in Finance Charter are female, along with 39% of middle and junior managers, according to a report to mark the initiative's first anniversary. The charter's aim is to increase the representation of women at all levels in Luxembourg's financial sector over the coming years, with members setting deadlines between 2024 and 2030 to achieve targets of 33% for executive positions, 32% for board members and 39% for senior managers. Its 71 signatories comprise 34 banks, 15 insurers and reinsurers, 10 Super ManCos and AIFMs, five financial associations, four specialised financial sector professional entities and three investment firms, which between them have around 28,000 employees.
Best source: Delano

Venture capital firm Sequoia left embarrassed by attempt to oust its former partner from Klarna board
Silicon Valley venture capital firm Sequoia Capital has abandoned an attempt to oust its former partner Michael Moritz from the board of Swedish fintech firm Klarna. Moritz left Sequoia last year after nearly four decades during which he had led investments in Google and PayPal as well as Klarna, promising progressively to step down from the boards of companies in which the firm had invested. He relinquished his Sequoia-affiliated board seat at Klarna to Matthew Miller at the start of this year, but was asked to remain in an independent capacity. However, days after Miller had launched a bid to unseat Moritz as chairman of the buy now, pay later finance provider at an emergency general meeting, Sequoia withdrew its request and announced that Miller would be leaving the board instead. The move against Moritz was seen as possibly indicating the venture capital firm's dissatisfaction with Klarna CEO Sebastian Siemiatkowski, a close ally of the former Sequoia partner, and could complicate the company's plans for an initial public offering.

Barclays to face class action lawsuit from shareholders over unauthorised US debt issuance
A US judge has ruled that Barclays must face a class action lawsuit by shareholders accusing the bank of securities fraud. In 2022, it emerged that the structured and exchange-traded notes issued by Barclays over the previous five years had exceeded the volume US regulators had authorised by $15.2bn, an excess subsequently found to be $17.7bn. Barclays offered to repurchase the debt and set aside £1.59bn for the breach of the issuance limit. The US District Court in Manhattan has ruled that shareholders had sufficiently demonstrated that Barclays' failure to disclose the absence of internal controls that might have prevented the lapse could constitute a material omission of fact.
Best source: Reuters (free registration)

US directors’ association raises concern over regulator’s new banking governance guidelines
The US National Association of Corporate Directors has expressed concern about a proposal from the Federal Deposit Insurance Corporation to implement corporate governance guidelines for non-member banks, including state-chartered institutions and state-licensed insured branches of foreign banks with assets exceeding $10bn. The association's president and CEO Peter Gleason says the guidelines should be voluntary and that the organisation is concerned about the precedents the proposed rules could set for sectors outside banking. He suggests a distinction should be drawn between recommendations and requirements to lower the risk of excessive prescriptiveness and reduce the potential increase in directors' liability exposure.
Best source: Governance Intelligence

Temenos to conduct independent review of Hindenburg false accounting allegations
Shares in Temenos have fallen sharply after a report by short-selling firm Hindenburg Research alleged accounting irregularities at the Swiss financial software company. The firm has denied Hindenburg's claims that it was guilty of earnings manipulation and other irregularities including roundtripping of revenue, sham partnerships, pulling forward of contract renewals, backdated contracts and excessive capitalisation of spurious R&D investments, but its board of directors has ordered an independent third-party review of the allegations. Activist investor Petrus Advisers has called for the departure of interim Temenos CEO Andreas Andreades, but has defended the company's performance in recent years.
Best source: Bloomberg (subscription required)
See also: FinTech Futures

Sequoia drops plan to seek removal of Michael Moritz from Klarna board
Sequoia Capital has abandoned an attempt to remove its former partner Michael Moritz from Klarna’s board of directors, days after the attempt was launched by Sequoia-nominated director Matthew Miller. The unexpected move against Moritz had threatened to open a boardroom clash within the buy now, pay later firm as it moves ahead with plans for an IPO, but Miller will instead leave the board himself.
Best source: The Information (subscription required)
See also: Financial Times (subscription required)

Trade union warns Luxembourg’s research sector could be damaged by poor working conditions
The OGBL trade union has warned that Luxembourg could become unattractive as a location for research due to high housing costs and the lack of permanent job positions, with most researchers having fixed-term employment contracts. The union says it has raised its concerns with the Ministry of Research and Higher Education, noting that the new government's coalition agreement did not address the working conditions of researchers. The union is calling for an improved collective employment agreement for the sector.
Best source: Tageblatt (in German)

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