HM Treasury: The Proxy Advisors (Shareholders’ Rights) Regulations 2019
On May 14, 2019, the Proxy Advisors (Shareholders' Rights) Regulations 2019 (SI 2019/926) were laid before Parliament (2019 Regulations). The 2019 Regulations transpose Article 3j of the revised EU Shareholder Rights Directive (SRD II) into UK law.
Article 3j of SRD II places requirements on proxy advisors, which primarily offer voting services and/or advice to shareholders in publicly listed companies, to make certain disclosures about the way in which they conduct their business. It responds to concerns that there is a lack of transparency in the way in which proxy advisors carry out their work, which could lead to institutional investors purchasing poor quality, inaccurate or unreliable advice, undermining their ability to fulfil their stewardship role effectively.
Article 3j requires proxy advisors to make certain disclosures about how they conduct their business. Proxy advisors will be required to:
- Disclose reference to a code of conduct which they apply, and report on the application of the code. If proxy advisors apply a code of conduct but depart from its recommendations, they must declare the parts of the code from which they depart, why they depart from it and indicate any alternative measures adopted. Where proxy advisors do not apply a code of conduct at all, they must explain why this is the case.
- Disclose information on their research capabilities and how they produce their advice and voting recommendations (e.g., models, methodologies, information sources and resources).
- Identify and disclose any actual or potential conflicts of interests or business relationships that may influence the preparation of their research.
The requirements in the 2019 Regulations apply to a proxy advisor which:
- Has its registered office (or where it does not have a registered office, its head office) in the UK; or
- Has its registered office or head office in any country or territory other than the UK, Gibraltar or an EEA State and provides proxy advisor services through an establishment located in the UK; and
- Provides services to investors holding shares in firms whose registered office is in the UK, Gibraltar or an EEA State, and whose shares are traded on a regulated market in the UK, Gibraltar or an EEA State.
The 2019 Regulations also make the Financial Conduct Authority (FCA) responsible for enforcing the requirements in Article 3j and give it powers to sanction breaches of the obligations in the 2019 Regulations through public censure and/or financial penalties.
The 2019 Regulations enter into force on June 10, 2019.
(The Proxy Advisors (Shareholders’ Rights) Regulations 2019, 14.05.19)
(The Proxy Advisors (Shareholders’ Rights) Regulations 2019 explanatory memorandum, 14.05.19)
ISS: ESG Review 2019 – The state of play of corporate responsibility
On May 15, 2019 Institutional Shareholder Services (ISS) published its ESG Review 2019, an annual analysis of the state of adherence by companies across the globe to environmental, social, and governance (ESG) criteria. The reviews findings demonstrate positive trends in corporate sustainability performance, and a continued rise in the number of reported controversies across all ESG topics.
The review notes that the group of companies rated with medium or excellent performance now includes more than 67.5 per cent of covered companies in developed markets, representing an all-time high over the 11-year history of the review. Similar patterns can be observed among companies in emerging markets, albeit at a considerably lower level. The findings also show that 41 per cent of the assessed companies contribute positively to the United Nations Sustainable Development Goals (UN SDGs) through their products and services, of which 8 per cent contribute to the UN SDGs through their products and services to a significant extent.
However, the rise in the number of reported controversies across all ESG topics has continued, linked to the breach of established standards for responsible business conduct. This results from a maturing debate about human rights due diligence, increased awareness about standards, improved monitoring mechanisms and the expanding influence and reach of social media.
(ISS: ESG Report 2019, 15.05.19)
(ISS: ESG Report 2019 Summary of key findings, 15.05.19)
(ISS: ESG Report 2019 Press release, 15.05.19)