Spanish securities supervisor suggests ESG board committees in governance overhaul

Supervisor also wants securities lending ‘on the menu’ after decade-long ban

Spain’s National Securities Market Commission, the Comisión Nacional del Mercado de Valores (CNMV), has opened the door for the creation of specialised committees within the boards of listed companies, to monitor observance of ESG corporate policies.

The supervisor has proposed that if companies opt for setting up an ESG committee, this should be made of external directors, of whom at least two should be independent. An alternative is to assign other existing committees responsibility for ESG monitoring functions.

In addition, the CNMV has proposed reinforcing the role of audit committees to oversee both financial and so-called ‘non-financial’ risks, as well as coherence between the two.

Spain is among the few countries where shareholders vote on companies’ non-financial information reports separately in AGM ballots – a result of how the country transposed the EU’s Non-Financial Reporting Directive.   

The CNMV recently penned amendments for a review of the national governance code of 2015, and it is currently studying feedback to a consultation that closed on 14 February. Responses by stakeholders should be published soon, but RI has seen some of the feedback already, including comments from Juan Prieto, CEO and founder of Spanish proxy advisory firm Corporance, who welcomed the idea of giving boards the choice to create sustainability committees.

Prieto wrote that the importance of supervising ESG policies might justify the creation of a separate committee, although, he wrote, the board itself should remain ultimately responsible.

He suggested that more detail is needed to define environmental and social aspects of this “new concept of sustainability”, but argued that “the G is at the heart of everything” ESG-related.

Prieto observed, however, that any potential sustainability committee should allow executives, beyond external directors, to be the link between the board and the company regarding ESG policies.

The Spanish institute of directors, Instituto de Consejeros-Administradores (IC-A), welcomed  the proposal, describing the incorporation of ESG and stakeholder considerations into the governance code as “a window of opportunity”.

The IC-A wrote that in the ongoing “transition to Capitalism 2.0” issues such as “purpose, sustainability, stakeholders, and non-financial information” should be high on the agenda of securities markets, to attract investors globally.

The governance code’s update proposed by the CNMV also touches upon measures for the board to deal more effectively with misconduct cases.

This comes on the back of court proceedings over corporate spying allegations at Spanish bank BBVA.

The bank allegedly hired former senior police officer José Manuel Villarejo to investigate construction company Sacyr Vallehermoso and members of the Spanish government regarding a takeover bid back in 2004.

The case has resulted in the emergence of information that could potentially be damaging for other major listed corporations of the Spanish Ibex 35 index.

The CNMV has also been signalling it supports lifting restrictions that prevent Spain-domiciled funds from accessing securities lending market.

That comes after the CNMV’s President, Sebastián Albella, advocated for having loyalty shares “on the menu”, so that long-term shareholders can be granted additional voting rights.

There were attempts to reintroduce Spanish securities lending back in 2007, but they were put on hold due to the financial crash. The CNMV has revived the idea on competition grounds, arguing that Spain could be constrained by the rules.

Spanish stocks are still being lent by overseas funds and investors, however. For example, Norges Bank has reportedly lent 1.9% of its holdings in Spanish firm Sacyr.

A spokesperson for the CNMV told RI that the supervisor is in favour of the change, but it is the Finance Ministry who is ultimately responsible for any legislative initiative.