The week in GRC: Fink says BlackRock not the ‘environmental police’ and SEC reopens cyber-security rules comment period
– Reuters (paywall) reported that US authorities took emergency measures to protect confidence in the banking system after the failure of Silicon Valley Bank (SVB) created fears of a wider financial crisis. Regulators said the bank’s customers would have access to all their deposits and set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
Although the measures provided some relief for Silicon Valley firms and global markets on Monday, worries about broader banking risks remained and cast doubts over whether the Fed will stick with its plan for aggressive interest rate hikes.
– According to the Financial Times (paywall), investors were expected to warn the Japanese government that a planned revision to rules on anti-takeover defenses risks giving companies stealth protections against hostile domestic bids, foreign buyers and shareholder activists. The investors are wary of protectionism in a market where takeovers of listed companies are rare and management teams are often reluctant to prioritize investors.
An official at the Ministry for Economy, Trade and Industry involved in setting up the guidelines said lawyers known for helping companies to adopt anti-takeover measures were asked to join the Fair Acquisition Study Group, set up to debate the new rules, as the reforms would not work without their co-operation. ‘If we want to make sure to avoid the misuse of anti-takeover measures, we need to involve lawyers who are actively making use of these measures,’ the official said.
– Credit Suisse Group said it had found material weaknesses in its financial reporting over the past two years due to ineffective internal controls, The Wall Street Journal (paywall) reported. The bank’s management, including CEO Ulrich Körner and CFO Dixit Joshi, who both started in their jobs in 2022, concluded that the controls were not effective, Credit Suisse said in its annual report. The weaknesses meant controls around 2021 financial reporting also weren’t effective.
Despite the lapses, Credit Suisse said its financial statements ‘fairly present, in all material respects, the group’s consolidated financial condition.’ The bank had to delay its annual report following last-minute questions from the SEC around earlier cash flow statements.
Körner said the bank’s financial results for 2022 and previous years were unaffected by the finding, and that it made the disclosure following the SEC’s questions, which he said were part of a longer dialog. ‘We wanted to appropriately respond to feedback we had from the SEC, and we did,’ he said. ‘This has led into… material weaknesses in the financial reporting controls, which we are, as you would expect from us, addressing very forcefully with the appropriate actions.’
– The SEC proposed requirements for broker-dealers, clearing agencies, major security-based swap participants, the Municipal Securities Rulemaking Board, national securities associations, national securities exchanges, security-based swap data repositories, security-based swap dealers and transfer agents to address their cyber-security risks.
SEC chair Gary Gensler said: ‘The nature, scale and impact of cyber-security risks have grown significantly in recent decades. Investors, issuers and market participants alike would benefit from knowing that these entities have in place protections fit for a digital age. This proposal would help promote every part of our mission, particularly regarding investor protection and orderly markets.’
The proposal would require all covered entities to implement policies and procedures that are reasonably designed to address their cyber-security risks and, at least every year, review and assess the design and effectiveness of their cyber-security policies and procedures.
– Gensler also renewed a vow to prosecute any misconduct threatening global markets, saying the SEC has a responsibility to protect market resilience, Reuters reported. He made the remarks after a weekend of turmoil involving the collapse of SVB. ‘Lest we forget, eight million Americans lost their jobs, millions of families lost their homes and small businesses across the country folded as a result of the financial crisis of 2008. To that end, I think the SEC has a responsibility to help protect financial stability,’ Gensler said.
– Larry Fink said in his annual letter to investors that asset managers such as BlackRock are not ‘the environmental police,’ CNBC reported. He wrote: ‘As I have said consistently over many years now, it is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police.’
But BlackRock takes its role as a fiduciary for clients incredibly seriously, the letter makes clear. Doing that job well requires the firm to monitor the risk climate change poses to financial assets. ‘Investing for the long term requires taking a long-term view of what will impact returns, including demographics, government policy, technological advancements and the transition to a low-carbon economy,’ Fink wrote. ‘For years now, we have viewed climate risk as an investment risk. That’s still the case.’
– According to Reuters, the Surface Transportation Board of the United States (STB) said it had approved Canadian Pacific’s $31 bn acquisition of railroad company Kansas City Southern with a series of environmental and competition conditions. Canadian Pacific CEO Keith Creel said in a statement that the board’s decision ‘clearly recognizes the many benefits of this historic combination. As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth.’
The STB said it expects the new single-line service will foster the growth of rail traffic and reduce emissions by moving roughly 64,000 truckloads annually from North American roads to rail.
– According to Reuters, Shell’s chair said in a report that the company has ruled out setting targets to cut greenhouse gas (GHG) emissions in absolute terms from customers’ use of its products, amid increased activist and investor pressure over climate. End-user, or Scope 3, emissions account for about 95 percent of the company’s GHG pollution and some investors have urged Shell to introduce medium-term targets to reduce them in absolute terms.
‘The board has considered setting a Scope 3 absolute emissions target but has found it would be against the financial interests of our shareholders and would not help to mitigate global warming,’ said Shell chair Andrew Mackenzie in the report. Shell said that such Scope 3 targets would force it to reduce sales of oil products and natural gas, in effect ‘handing over customers to competitors’.
Shareholders will vote on May 23 on a resolution filed by activist group Follow This, which asked Shell to set 2030 emissions reduction goals in line with the 2015 Paris UN accord on climate change. Shell’s board has yet to issue a recommendation, but it has previously recommended that similar resolutions be opposed by investors.
– The SEC reopened the comment period on proposed rules and amendments related to cyber-security risk management and cyber-security-related disclosure for registered investment advisers, registered investment companies and business development companies that were proposed by the commission on February 9, 2022. The initial comment period ended on April 11, 2022.