Market Update:

  • Climate Related Disclosures
  • CEOs Speak!

Georgeson Update:

  • Environmental group target 30 multinationals
  • Activism Rebounds
  • Climate Competent Boards
  • ESG Priorities

Market Update

  • Mark your calendar for 6 April. From this date, new regulations will come into force that will require publicly quoted companies, large private companies and LLPs to include climate related disclosures within their strategic report.

    The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the equivalent for LLPs will apply for accounting periods starting on or after 6 April 2022. Those organisations within scope will be required to make disclosures which are broadly in line with the Task Force on Climate-related Financial Disclosure (TCFD) Recommendations in future strategic reports.

    The regulations will apply to the following types of UK incorporated entities:

    • Companies that are currently required to produce a non-financial information statement (i.e., more than 500 employees which are listed, or a banking/insurance company);
    • AIM companies with more than 500 employees;
    • Listed or banking LLPs with more than 500 employees;
    • Companies and LLPs which have more than 500 employees and a turnover of more than £500 million.

    These regulations are in addition to the changes made to the listing rules for premium and standard listed companies to report against the TCFD recommendations on a comply or explain basis. The rule requirements for premium listed companies apply to accounting periods on or after 1 January 2021 and for standard listed companies for accounting periods on or after 1 January 2022.

    CPU’s view

    While this regulation will not require reporting to be published until mid-2023, many listed companies will already be required to report on broadly similar TCFD subjects under the listing rules. It will be interesting to see how organisations, regulators and the government manage the cross over between the regulation and the listing rules. It is notable that through this legislation, obligations under the listing rules which are broadly similar are a mixture of mandatory disclosures and recommended disclosures.

    The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 creates law under the Companies Act and disclosures will become a statutory obligation. For those who aren’t subject to the listing rules applicable to premium listed companies, it will of course be sensible to monitor the actions and approaches being taken by those in scope this year, to help guide your organisation when you come to do your first disclosures.

  • A recent survey by The Conference Board of 1,614 CEOs worldwide have revealed regional variations in perspectives, in particular around ESG social priorities. Within Europe, the respondents ranked labour conditions, gender equality and economic opportunities as their top priorities. This was similar to many other regions, with the US as an outlier, viewing economic opportunity, race and gender equality as their top priorities.

    A recent survey by The Conference Board of 1,614 CEOs worldwide has revealed regional variations in perspectives on a number of matters, and identified some interesting insight into views on the current and future operating environment of organisations, such as:

    • 55% of respondents expect that pricing pressures will last until mid-2023 or longer and that over 40% believed that their organisation wasn’t ‘well prepared’ for an inflation crisis.
    • Labour shortages drive talent retention and that companies should prepare for higher wage and benefit costs together with increased staff turnover in 2022.
    • Respondents expect the number of remote employees will significantly exceed pre-pandemic levels.

    The survey also found that while priorities for CEOs globally are broadly similar, the level of importance differs by region. Within Europe, the respondents ranked labour conditions as their top priority, followed by gender equality and in third place the economic environment. This was similar to many other regions, with the US as an outlier, viewing economic opportunity as the top priority, followed by racial equality and then and gender equality.

    CPU’s view

    It seems clear from the respondents’ position on inflation and labour matters that there is a perceived risk of higher costs and indications of potential wage spiral as organisations need to consider how they are able to attract and retain their employees, while considering a broad spectrum of social economic factors. Boards and especially remuneration committees need to be mindful of executive pay policies and packages, as during a period of inflation, cost of living increase and wage concerns, issuing substantial executive pay increases may well create friction with the workforce and wider stakeholders. Now is such an important time to ensure continued, effective and broad stakeholder engagement on remuneration practices.

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Georgeson market update

  • Reuters reports that Activists behind Shell climate verdict target 30 multinationals.

    “The Dutch wing of environmental group Friends of the Earth, which won a landmark court case against Royal Dutch Shell last year, demanded 30 corporations publish plans for big cuts in greenhouse gas emissions in a campaign launched on Thursday. Milieudefensie has set its sights on large companies with legal bases in the Netherlands, where a court ruled in May that Shell must reduce its environmental footprint.”

  • Bloomberg reports that Shareholder Activism’s Rebound to Confront Game Changing Rules.

    “Shareholder activism rebounded in 2021 but activists and defense advisers alike are bracing for regulatory changes that are likely to change how they do business for years to come. There were 220 campaigns launched against target companies with a market value of more than $1 billion by activist investors this year through Dec. 28, according to data compiled by Bloomberg. That was up about 20% from the 183 campaigns launched in 2020 but still below the 238 launched in 2019 prior to the coronavirus pandemic.”

  • Vanguard has published a memo entitled Vanguard’s expectations for companies with significant coal exposure.

    “Vanguard has explained its concerns about climate change and the financial risk it presents to long- term investors. We have outlined expectations for companies where climate change is a material risk: They should have climate-competent boards, robust climate risk oversight and mitigation measures, and effective climate risk disclosure. In this Insights, we focus on the risks that coal production and consumption can pose to long-term investors.”

  • The Institute of Directors has published a policy paper entitled ‘ESG Priorities for UK Companies 2022’.

    “Environmental, social and governance considerations are increasingly important decision-making criteria for all types of organisations – not only as a means of winning the trust of stakeholders but also as barometers of effective business management. The IoD provides a checklist of ESG priorities which are worthy of boardroom discussion in 2022, organised across the following key themes: Stakeholders and business purpose; Sustainability; Inclusion and Diversity; Governance; and, Executive remuneration.”

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