Market Update:

  • Stewardship Reporting
  • Overboarding
  • Corporate Governance Reporting
  • Climate Related Reporting
  • Glass Lewis – Voting Guidelines
  • Climate Disclosure Handbook

Georgeson Update:

  • ESG Integration Forum
  • Account for Climate Change
  • New Five-Year Review

Market Insights:

  • Hybrid AGMS
  • The E and the S of ESG
  • D&I

Market Update

  • The Financial Reporting Council (FRC) have published a report which provides an analysis of the reporting from the first signatories to the revised Stewardship Code.

    While the FRC recognised there continues to be high standards in some disclosures around governance, resourcing, and stewardship integration, they have identified areas where improvements can still be made. Such areas include management of conflicts, assurance of activities and their monitoring of service providers.

    The FRC would like to see an increased focus of signatories in 2022 on both market-wide and systemic risks, and detailed reporting on the outcomes of engagement.

  • The law firm, Hunton Andrews Kurth, have published a synopsis of the current director overboarding policies of several of the proxy advisors and large institutional investors. This should be viewed as a handy reference tool for organisations when considering imposing director limits on additional board service.

    While overboarded directors may not be ineffective, the synopsis is a useful tool to help ensure that organisations remain aware of their investors’ policies so that they may consider the concerns that drive their positions and engagement strategy.

    CPU’s View

    This synopsis represents a useful summary of the various positions of proxy advisors in relation to overboarding. Concerns regarding overboarding have been high on the agenda of investors for some time. It is beyond anecdotal that the capacity of a director is often predicated by the number of board level commitments they undertake. Commonly, this is evident by the correlation of missed meetings and number of one’s mandates. There are even greater levels of scrutiny in times of crisis, such as during a global pandemic, when boards are expected to dedicate a significant increase in time to address the associated risks related to their response. In the example of the pandemic, this is a crisis faced by all companies and with directors required to commit more energy to every one of their roles, being pulled in every direction will inevitably mean something has to give. Being mindful of the proxy advisors’ position allows the right conversations to be had between investors and boards and understanding expectations is integral when considering board evaluations and as part of succession planning.

  • The Financial Reporting Council (FRC) published their annual review into corporate governance reporting, together with a podcast that discussed the key themes.

    Within the report the FRC highlight areas of good quality reporting, as well as where organisations can continue to improve such as with disclosures on board appointments, succession planning and diversity. It was also felt by the authors that a greater focus on reporting matters related to the effectiveness of internal control and risk management would increase confidence.

    Furthermore, the FRC express a view that there needs to be greater clarity in reporting on how the principles of the Code are being applied, together with better explanations when there are departures.

    CPU’s View

    It good to see that the FRC are recognising the improvements that companies are continuing to make in regarding to their corporate reporting despite a frequently changing landscape. However, it continues to be clear that vanilla statements are not acceptable. Companies need to do more to ensure that they are following both the spirt and purpose of the reporting requirements and provide robust narratives when drafting disclosures. This is clearly not as easy as it may sound and while the recommendations from the FRC are not accompanied with any supporting guidance, there are resources available that can assist companies and we are happy to discuss these further with any interested organisation.

  • The Financial Conduct Authority (FCA) have published a special edition of their Primary Market Bulletins which following the introduction of Listing Rule 9.8.6(R)8.

    This new rule requires listed companies, who are subject to the listing rules, to make disclosures in compliance with the Task Force on Climate Related Disclosures (TCFD) for financial years beginning on or after 1 January 2021. So, this market bulletin is focused on the disclosure requirements for those companies that fall within scope of the new rule.

    The key matters within the bulletin are:

    • Consultation on technical note
      The Authority are consulting on a new technical note that will provide further guidance on certain disclosure requirements, including explaining non-compliance and the role of third-party advisers.
    • Supervisory strategy
      It is clear that while the FCA is going to be responsible for monitoring and enforcement regarding compliance with the Listing Rules, the FRC will also be significantly involved in reviewing the actual disclosures made by companies. Therefore, if the disclosures do not appear compliant, then the FRC may ask for corrective action to be undertaken and request confirmation that reporting for the following year will be enhanced.
    • Sanctions
      If there is a failure to include a disclosure within the annual report, then the FRC will require the company to make a separate disclosure via a market announcement. They also reserve the right to use their other powers to deal with non-compliance.

    It is understood that the FCA have now concluded their consultation on extending the scope of the disclosure requirements to standard listed companies and is anticipating publishing any rule changes in this area prior to the end of the calendar year.

    CPU’s View

    When considering these changes, it worth noting that within the market, institutional investors are increasingly becoming frustrated with organisations who set out laudable goals and objectives but aren’t considered to be putting the necessary resources and investments into delivering against them in the long term. Companies should also be mindful that TCFD is just a starting point as more recommendations in relation to other environmental matters, such as biodiversity and nature are beginning to emerge too. We are expecting that with these listing rule changes and then the introduction of mandatory reporting legislation in April 22 for all listed companies, that these disclosures will become the hot topic for reviews, investor challenge and voting recommendations post the peak of the 2022 AGM season.

  • Glass Lewis have published their 2022 Policy Guidelines together with their policy guidelines on ESG initiatives. The document lays out what they see as current best practice and their voting recommendations for 2022.

    Within the document the key updates are:

    • Board diversity
      Generally, a recommendation against the re-election of the nomination chair will be applied for any FTSE 100 board where they have failed to appoint at least one directorfrom a minority ethnic group or failed to provide a clear and persuasive rationale as to why this is the case.
    • Executive Remuneration
      There may be a recommendation against the chair of the remuneration committee where there are considerable concerns with the remuneration policy or pay practices disclosed in the remuneration report.
    • ‘Say on Climate’ votes
      Shareholder proposals requesting the adoption of a ‘Say on Climate’ vote will generally be opposed as the business strategy of the company is best determined by the board itself. Whereas if the company are asking shareholders to consider a climate transition plan or similar then such resolutions will be evaluated on a case-by-case basis.
    • Disclosure of environmental & social risks
      Where FTSE 100 companies fail to include information on the board’s role in overseeing material environmental and/or social risks then there may be a recommendation against the re-election of the governance committee chair.
    • CPU’s View

      Recent changes in Glass Lewis policy have generally codified a relatively long-standing position on matters such as remuneration and board gender diversity. Most policy changes seem reactionary to the existing internal policies that institutional investors already apply. The policy updates on pay for performance however point to a significantly stricter set of criteria and we expect more against recommendations in 2022 proxy season versus those seen in 2021. Glass Lewis has made a somewhat bold statement that they will recommend against most shareholder proposals on Say of Climate Votes. This is not however simply a free pass for issuers; boards are now expected to enhance environmental and social risk oversight and where seen as lacking, Glass Lewis will look to recommend against the relevant board committee chair.

  • The second edition of the Climate Disclosure Standard Board’s good practice handbook has been released and which shares examples of disclosures from around the G20 that cover the four elements of TCFD reporting.

    It aims to support companies with their implementation of the TCFD recommendations by providing used examples from a cross section of companies in varying sectors.

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Georgeson market update

  • Georgeson’s Daniele Vitale spoke at the ESG Integration Forum – Europe 2021

    “As evidenced by the latest AGM season, investors are stepping up their efforts on activism around ESG issues. There has been a far more diverse set of shareholder proposals tackling ESG challenges and those proposals are seeing a higher proportion of support. This session explores how the nature of engagements between companies and investors could be changing and seeks to share advice on how to engage with shareholders and focus on co-operation before conflict.”

  • The Harvard Business Review has published Account for Climate Change: The first rigorous approach to ESG reporting.

    “Corporations are facing growing pressure – from investors, advocacy groups, politicians, and even business leaders themselves – to reduce greenhouse gas (GHG) emissions from their operations and their supply and distribution chains. About 90% of the companies in the S&P 500 now issue some form of environmental, social, and governance report, almost always including an estimate of the company’s GHG emissions. The authors describe these as ‘catchall reports that are often made up of inaccurate, unverifiable, and contradictory data’.”

  • The UK Government has announced a new five year review to monitor women’s representation in the upper rungs of FTSE companies.

    “The call comes as the government announced today (Monday 1 November) it would back a new five-year review to monitor women’s representation in the upper rungs of FTSE companies, namely The FTSE Women Leaders Review, and encourage firms to open up opportunities to everyone. [...] To date, the government’s actions have proven immensely successful in encouraging companies – without the use of quotas – to improve the gender balance on their boards, through fair recruitment on the basis of merit. Earlier this year the final report of the government-backed Hampton Alexander Review, which ran from 2015 to 2020, found that its main target had been more than met, with over a third (34.3%) of FTSE350 board positions held by women. This marked a huge increase of 50% over 5 years. The numbers of ‘one and done’ boards – with only one-woman member – dwindled from 116 in 2015 to just 16 earlier this year. Today, the new FTSE Women Leaders Review opened its online portal for FTSE companies to submit their gender diversity data. New leadership is currently being appointed to steer the review and take forward new targets over the coming years.”

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Market Insights

For this edition, we’re including some insights from what Company Secretaries have been telling us is currently on their radars. We encourage you to give us your thoughts too. That way, we can pool the hot topics and feed what you tell us into our own thinking, future content and collective market insight. We are keen to encourage a much broader conversation with the Market, so don’t hold back!

  • As we know, traditional company general meetings are typically (although not exclusively) attended by retail investors. The increasing use of technology to support remote participation opens the door to a broader set of shareholders, investors and/or their representatives.

    In this context, some company secretaries are considering the impact on how they manage the meeting and a range of connected considerations, including:

    • Is there more that can be done to make the meeting more engaging, particularly for NEDs?
    • Does the use of technology create a challenge for the availability of suitable venues? This seems a particular concern over the next two to three years.
    • Does the increased level of accessibility to the activist investor or corporate representative have an impact on meeting preparation? How might the meeting be controlled, and should the potential for such attendees be a worrying development, or an opportunity for engagement?
    • Will the availability of technology be widely utilised by their investors? If not, might these leave a somewhat sour taste in the mouth given the additional planning required?
    • A desire to make the technology as simple as possible, relying on partners to ensure the transition is made easier for Chair and the wider board of directors.
    • Some companies considering the extent to which a Master of Ceremonies might be useful in co-ordinating the meeting, linking company presentations and questions from both on-site and remote participants.

    Declaring our interest, we have a well-regarded hybrid AGM solution, and have developed deep expertise in this field. We’d be delighted to speak to you about it, providing support and guidance to ease the transition and maximise the benefits that can be derived from technology.

  • There is a sense that when it comes to ESG reporting the dial needs to shift in both respects. It seems that the “G” of ESG is well covered, but there remains a lack of focus and references around the “E” and the “S”. We hear that generally there needs to be further discussion and an urgent need for best practice guidance.

    Some company secretaries feel that shareholder requisitioned resolutions and actions are not being captured effectively, which has led in turn to discussions about how seriously they are being taken.

    Please get in touch with us to give us your thoughts – what’s working, and what’s not. What could your registrars be doing to help you?

    We will be holding a series of roundtable discussions, hosted by our Georgeson colleagues, in the New Year. Whilst we are in the planning stages, you can register your interest now.

  • Let’s end on another problem area. We’ve picked up that some company secretaries are finding it challenging to understand how best to support Nomination Committees with what they should be doing, and disclosing, about how they include D&I initiatives and expectations in their succession planning.

    There appears to be a level of frustration particularly with proxy advisers, who, it is opined, take little or no account of industry specifics when making their recommendations.

    One of the particular concerns is pinning down to whom and where this issue sits. With company secretaries? With Boards? With proxy advisors and investors?

    Defining the question “what should we be doing in our own context” is being asked around NomCo tables.

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