Regulatory activity has been intense so far this year. We have had to learn what MIFID II means, digest the new GDPR data protection and NFRD non-financial reporting regulations, as well as prepare for the transposition of the revised European SRD II shareholder rights directive by June 2019, with new obligations for listed companies, intermediaries, proxy advisors and, above all, institutional investors.
At the same time, the need to show good behaviour in terms of social and environmental responsibility, transparency and good governance is starting to become standard practice among investors, issuers and other market players. This is driven by the European authorities in order to contribute to the progress of society and the development of a more sustainable economy in the long term, generating growth and employment.
Corporate Social Responsibility (CSR), initially focused on companies, has been joined by other trends such as Socially Responsible Investment (SRI) aimed at investors and the demand by authorities and markets for them to exercise their fiduciary role as owners of the companies in which they invest, through the new SRD II directive.
Listed companies and in particular Spanish multinationals have made great efforts in recent years to improve their social responsibility policy and corporate governance, reaching international standards. With the new directive, this responsibility is intended to be shared with investors, the other side of the coin, as the English say "it takes two to tango". In this way, social responsibility does not only belong to companies, but also to investors.
In Spain, Spanish institutional investors have traditionally lagged behind European (and not to mention Anglo-Saxon, far ahead) institutional investors in these practices, although the trend is changing rapidly, driven by regulatory momentum and the progressive implementation of international practices. Large national investors and managers will now have to be more transparent in their relationship with issuers, defining, publishing and complying with their voting and engagement policies. These policies should be integrated into their investment strategy and include factors such as performance and risk analysis (financial and non-financial), capital structure, environmental, social and governance factors, length of time for which the issuers are required to hold their shares, and the duration of the issuer's shares.
and consistency with long-term objectives.
In the end, all the acronyms come together in ESG (Environmental, Social and Governance) factors, where the social responsibility of companies is shared with that of their shareholders, including ecological factors, strongly promoted through the 2015 Paris Agreement to combat climate change, as part of the European Commission's Action Plan, and the Sustainable Development Goals (SDGs) of the United Nations. The UN has also promoted the Principles for Responsible Investment (PRI), whose fundamental objective is the integration of ESG factors into investment decisions. Together with the new SRD II directive, this is a good opportunity to bring our legislation up to date with international responsible investment practices, bringing it into line with our neighbouring markets.
A recent KPMG report on corporate social responsibility at the global level, points out the
The main concerns of companies are: the recognition of financial risks linked to climate change; explicit references to the UN SDGs; the importance of human rights in business; the inclusion of greenhouse gas reduction targets linked to global or national goals; and the growing trend towards integrated reporting, including both financial and non-financial information.
It is important that all these factors come together in a coordinated way in the efforts of companies and the interest of investors in a model of a fairer society and a more sustainable economy, that the A for environment and the S for social gain weight in investment decisions, but without forgetting the G for governance, because without good governance it is difficult for the other values to succeed and offer credibility for the markets and their participants.