The Driving Forces Behind Corporate Governance

However, these are all challenges that can be overcome. Acknowledging them does not mean that we should not move to T+1; rather it shows that we have to carefully plan how and when to do so.

Hence, the route ahead is to first engage broadly across the industry to ascertain what would have to be improved to make such a transition possible and if the changes required are reasonable for the payback delivered. Next we need a commitment that the necessary changes will be made. Then, we can put a plan in place.

This all sounds like a lot of work. Instant gratification is always tempting. It would be easier to set a date now and just hope that doing so forces the required changes. We have tried that before. However, some careful planning sounds a safer route ahead.

It is not quite a case of ‘don’t just do something, stand there’. There is plenty to get on with in the meantime to improve settlement efficiency. In fact, doing so is required for shortened settlement cycles, atomic settlement or even if we stay with T+2 for a little while yet.

To find out more, we deep dive into the regional and global key points here

Alan Cameron Head of Financial Institutions & Corporates Client Line Advisory, BNP Paribas Securities Services

In recent years, a heightened focus upon corporate governance has become evident along all links in the investment chain. ESG (Environmental, Social and Governance) responsibilities have arisen as the main catalyst for change impacting both investors and issuers. This trend is not expected to ease off and we will see ESG factors continuing to be a considerable influence on corporate governance and proxy voting in years to come. It is important to bear in mind that globally there are approximately 900 ESG-related laws with several more pending approval on the horizon.

Investors now focus more on topics such as sustainability when they are looking to invest, and issuers are aware that evidencing strong ESG credentials is not only good governance but also essential in the effort to raise capital and attract additional investors.

Investor focus on ESG continues to grow Regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainable Reporting Directive (CSRD) are all designed to enhance awareness, transparency, and assurance on the key topic of sustainability for the investor community. They do this by mandating fund categorisation, audited reporting and corporate governance activity focused upon the three ESG pillars. Investors assess companies on a multitude of factors including how they act in the best interests of stakeholders, how the company image is promoted, and reputation built, and importantly how they prove that good corporate governance principles have been applied.

This assessment continues to be a focal point for investors as they continually look for solutions that improve their ability to monitor and score companies’ performance. Investors’ assessment of a company’s ESG credentials are now a vital part in their investment and voting decisions.

How can investors use ESG credentials?

There is increased shareholder appetite for proposing resolutions regarding ESG topics such as board diversity, cleaner energy, lower emissions, and carbon footprint. Voting and participation at meetings provides a platform for shareholders to air their concerns and ensure their voices are heard by the issuer community.

Recently, several large investment houses published their intention to vote against directors of large capital European companies who fail to integrate ESG performance metrics into executive pay policies. There is a likelihood that investment houses and advisors will increasingly apply similar types of ESG-related rules within their voting policies.

Evolving regulatory landscape

Despite the industry having seen significant growth in ESG-related regulations, expect more to come. Regulators are currently focused on consistency, particularly in benchmarking and ethical scores, to ensure rating agencies use consistent standards and divest from any conflicting activities, such as consulting to businesses that they rate. This is an important development to ensure investors are not being deceived by tactics like greenwashing, which involves making misleading or false information about the environmental impact of a company.

We should expect to see an even higher focus and attention towards ESG credentials. As the ability of investors and regulators to measure ESG credentials improves, the risk of exposing more examples of failed performance and greenwashing cases increases, whilst companies strive to meet consumer demand for environmentally friendly goods and services. Failure to comply with these new regulations, laws, and guidelines risks companies becoming subject to litigation such as class action cases.

The recent car emissions scandal and subsequent class actions demonstrates the risks that companies could expose themselves to. This case instigated an estimated cost in the region of 35 billion dollars, and there are more examples coming to the fore, each proving the growing importance for issuers to ensure they have a commitment to the ESG agenda.

Michael McPolin Managing Director, Market Advocacy & Business Change, Broadridge