The Institutional Investors Group on Climate Change (IIGCC) is calling on EU lawmakers to “strengthen and streamline the approach to stewardship” as part of the current review of how sustainable finance is regulated in the bloc.
The body made a raft of recommendations on Monday, including the introduction of an EU-wide stewardship code, supervised by “a reputable” regulatory authority.
The code should be built on existing national equivalents, the IIGCC said, and include “clear principles and standardised definitions for engagement, escalation, and sustainability integration”.
Investors should be required, on a comply-or-explain basis, to disclose the nature of their commitment to the stewardship code, according to the recommendations.
To help, the IIGCC urged policymakers to “explicitly” connect stewardship activities with fiduciary duties, investment objectives and systemic risk management.
They should also actively support collaborative engagement efforts, in part by issuing “practical guidance” to help investors understand how to navigate rules that prevent them from acting in concert.
This has become a point of contention for shareholders who work together to pursue sustainability objectives, but worry they will be accused of flouting competitiveness rules as a result.
IIGCC proposed that stewardship expectations be applied to asset classes beyond public equities, such as fixed income, real estate, private equity and infrastructure.
Proxy season
When it comes to voting at annual general meetings, the IIGCC said there was a need to improve current practices and mechanisms “to ensure shareholders can effectively exercise their rights and influence corporate behaviour, while extending stewardship regulation across appropriate asset classes”.
This should include standardising the timelines for disclosing voting decisions and providing key issuer information, simplifying meeting documents and establishing EU-wide expectations for how meetings should be conducted.
The IIGCC insisted that it was wrong to permit share structures that entitled some owners to have more influence over critical voting items like executive remuneration.
SFDR, CSRD and SRDII
The proposals come in the midst of a major overhaul of the EU’s sustainable finance regulation, which includes moves to slash the Corporate Sustainability Reporting Directive (CSRD).
The IIGCC warned against any dramatic reductions in the supply of companies’ sustainability data, on the basis that it enables investors to make more informed voting and engagement decisions.
The Sustainable Finance Disclosure Regulation (SFDR), which is also undergoing a review at the moment, should be assessed to ensure its stewardship-related reporting expectations are consistent with the Shareholder Rights Directive II, according to the paper.
“Investor stewardship can play a critical role in fostering sustainable long-term value creation and encouraging behavioural change to support the transition efforts of investee companies in line with the EU’s net zero commitments,” said IIGCC.
“But, to fulfil this role, investors need a coherent, EU-level approach to stewardship that transcends national boundaries.”
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