The week in GRC: Companies’ climate pledges face tougher scrutiny and SBTi seeks consensus on ‘net-zero’ meaning
– The Wall Street Journal reported that Jes Staley stepped down as CEO of Barclays under pressure from regulators about how he characterized his relationship with the convicted sex offender and financier Jeffrey Epstein. Barclays said Staley stepped down ‘in view of the conclusions’ made by UK regulators in an investigation into what Staley told the bank about his association with Epstein and what it told regulators about the relationship.
The bank said the investigation didn’t find evidence that ‘Mr Staley saw, or was aware of, any of Mr Epstein’s alleged crimes’ and said Staley was planning to contest the conclusions drawn by regulators. Barclays said board members were disappointed that Staley was stepping down. CS Venkatakrishnan, head of global markets, will take over as CEO immediately, the bank said.
Spokespeople for the UK’s Financial Conduct Authority and Prudential Regulation Authority confirmed the Barclays statement but declined to provide further details about the investigation.
– According to Reuters, litigation over special purpose acquisition companies (Spacs) is heating up, leading deal lawyers to take steps to help avoid such challenges. Attorneys are advising clients to more thoroughly vet a potential target’s business and to increase transparency around conflicts of interest and other issues that could spark lawsuits. The SEC is also ramping up enforcement actions and scrutiny of the Spac deals market.
‘Both parties have to take their time to do more diligence, do more vetting and create disclosure that’s more narrowly tailored to the facts and the situation,’ said Joshua DuClos, an M&A partner at Sidley Austin. Spacs raise funds through IPOs to merge with privately held companies and take them public.
– Nordic and UK pension funds committed to invest $130 bn by 2030 to fight climate change and report annually on the progress of their green investments, Reuters reported. The pledge, launched at the COP26 climate summit in Glasgow, Scotland, included asset owners in Sweden, Norway, Finland, Denmark, Iceland, the Faroe Islands and the UK, plus a fund from Greenland.
‘Green transition requires massive investments. Governments have to do their part and commit to a new green future. But we also need private investors on board,’ said Danish Prime Minister Mette Frederiksen. The group included some funds that have joined the growing number of money managers steering away from fossil fuels, amid increasing pressure for the financial sector to back urgent action to address the climate crisis.
– According to CNBC, Yahoo pulled out of China, citing an ‘increasingly challenging business and legal environment.’ Chinese authorities require companies operating in the country to censor content and keywords deemed politically sensitive or inappropriate. Yahoo said it ‘remains committed to the rights of our users and a free and open internet.’
Chinese laws also stipulate that companies operating in the country must provide data if requested by authorities, making it difficult for some to operate in China as they may also face pressure back home over giving in to the government’s demands. Yahoo’s withdrawal from the country is largely symbolic as at least some of Yahoo’s services, including its web portal, have already been blocked.
– The International Organization of Securities Commissions (IOSCO), in an effort to curb greenwashing, published recommendations that its members are obliged to apply when scrutinizing how asset managers sell funds touting ESG good practice, Reuters reported. Regulators are playing catch-up to contain the risk of money managers overstating the ESG credentials of their products, with the value of such funds hitting a record $3.9 tn at the end of the third quarter.
‘Setting regulatory and supervisory expectations is therefore fundamental to addressing issues relating to risk mismanagement and greenwashing,’ said Erik Thedeen, head of Sweden’s financial markets watchdog and chair of the IOSCO taskforce that drafted the recommendations, in a statement. They set out what regulators should check for in asset managers’ internal policies and procedures on such investments, and how they market funds that claim to be sustainable.
– Bloomberg reported that the Science Based Targets initiative (SBTi), which certifies corporate climate policies and introduced a net-zero standard for companies last month, published a report aimed at providing a foundation for reaching consensus on what ‘net-zero’ means. The paper should be seen as a ‘first step’ to develop a science-based net-zero standard for financial institutions, SBTi said.
The lack of consistency ‘around what net-zero means allows for financial institutions to claim they are doing more than they are and makes verification of any claims impossible,’ said Cynthia Cummis, technical director and founding partner of SBTi.
– The WSJ reported that most of the world’s big banks, major investors, insurers and financial regulators for the first time signed up to a co-ordinated pledge that will incorporate carbon emissions into their most fundamental decisions. The United Nations’ (UN) Glasgow Financial Alliance for Net Zero said financial groups with assets of $130 tn have committed to its program to cut emissions. That is enough scale to generate $100 tn through 2050 to fund investments needed for new technologies, and enough reach to impose pathways for companies and financial institutions to restructure themselves, the group said.
The funding can take the form of bank loans and investments by venture capitalists, private equity firms, mutual funds, endowments and other big investors that buy stocks and bonds. These would be used to shift funds toward investments that help lower carbon emissions while earning a profit. Financial regulators such as the US Federal Reserve have agreed to add their own oversight to the system through reviews and disclosure standards.
– Shoe company Allbirds was hoping to attract investors that favor companies that put an emphasis on sustainability as it launched its IPO, according to CNBC. ‘We did get exposure to a lot more pockets of capital as a result of the fact that people saw the genuine and authentic leadership we’re putting forward on ESG,’ said co-founder and co-CEO Joey Zwillinger. ‘I think the demand was so great [because] investors were really attracted by the opportunity to put their capital against a great opportunity to create outcomes that were better for the planet.’
– ISS is seeking views from governance stakeholders globally with regard to a number of its proposed benchmark voting policies changes for 2022 and beyond. The comment period runs until November 16, 2021.
Feedback is sought on 16 proposed policy changes. These include the assessment of and focus on the world’s highest greenhouse gas (GHG) emitting companies and adding policy provisions for say-on-climate votes. A new climate-related board accountability policy is proposed in several major markets, based on expectations from many investors that high-emitting companies should assess, mitigate and report on their climate change risks and targets.
For those markets, changes are proposed that would provide for recommendations to vote against the re-election of relevant directors (or other appropriate voting items) at high-emitting companies if appropriate climate-related disclosures, such as those according to the recommendations of the TCFD, have not been made or the company has not set quantitative GHG reduction targets.
– CNBC reported that the Biden administration ordered US companies to ensure their employees are either fully vaccinated by January 4 or regularly tested for Covid-19 – giving them a reprieve over the holidays before the mandate takes effect. The administration also pushed back the deadline for federal contractors to comply with a stricter set of vaccine requirements for staff from December 8 to January 4 to match the deadline set for other private companies and healthcare providers.
The newly released rules, issued by the Occupational Safety and Health Administration, apply to businesses with 100 or more employees. All unvaccinated workers must begin wearing masks by December 5 and provide a negative Covid-19 test on a weekly basis after the January deadline.
– According to Reuters, Expedia Group’s board and a group of shareholders agreed to settle a suit challenging the travel technology company’s 2019 acquisition of Liberty Expedia Holdings, which owned a stake in Expedia. The parties said in a filing in the Delaware Chancery Court that they had resolved claims that Expedia chair Barry Diller used the deal to remove limitations on his ability to pass his stake in the company to his stepson Alexander von Furstenberg. The board has denied the allegations and did not admit wrongdoing.
If approved by vice chancellor Travis Laster, the settlement would limit the number of Diller’s relatives or affiliates who could sit on Expedia’s board to two. That number would drop to one after Diller leaves the company.
Lead plaintiff Steamfitters Local 449 Pension Plan’s attorneys did not immediately respond to requests for comment. Neither did Diller and von Furstenberg’s counsel.
– The WSJ noted that the UN conference on climate change in Glasgow has been full of promises by companies to reduce their carbon emissions, and that two thirds of S&P 500 companies by the end of last year had set a carbon target. These targets have been hard to track, much less enforce. But that is changing as regulators, investors and activists scrutinize corporate disclosures to make sure businesses aren’t failing to fulfill their promises. Targets are becoming increasingly standard, and more businesses are aiming for them. That allows the commitments to be more easily verified.
The SEC may require companies to report progress against their goals under new rules it is drafting, officials have said. Investors and activists are also increasing their scrutiny of targets, putting pressure on high-emissions companies and their banks to set tougher benchmarks.
– The SEC released proposed amendments to update electronic filing requirements. The agency at present permits and sometimes requires certain forms to be filed or submitted in paper format. The proposed rule and form amendments would require certain forms to be filed or submitted electronically.
‘The proposed amendments are intended to modernize and increase the efficiency of the filing process – for filers, investors or other interested parties,’ said SEC chair Gary Gensler in a statement. ‘Just as we are hoping to update our rules for market participants in the face of rapidly changing technology, it’s also important that we update our rules to make filing obligations more efficient.’
– Gensler said he agrees with the US Department of Justice’s recently revised approach to prosecuting corporate misdeeds, according to the WSJ. Gensler was referring to changes recently announced by Deputy Attorney General Lisa Monaco, including that prosecutors would start considering all prior wrongdoing by corporations when deciding how to resolve a new investigation. In the past, prosecutors were allowed to review only cases whose facts were similar to the claims in the latest probe.
‘While our organizations are independent, and our enforcement tools, authorities and missions are distinct, these changes are broadly consistent with my view of how to handle corporate offenders,’ Gensler said. He also spoke about the process for evaluating possible enforcement actions, saying he has asked SEC officials to cut back on meetings with entities that want to discuss warnings about possible enforcement actions against them.