European Parliament passes ESG-boosted Shareholder Rights Directive

The plenary session of the European Parliament has today passed legislation to amend the EU Shareholder Rights Directive with an ESG-driven focus, after the so-called ‘trialogue’ agreement reached in December 2016 between the EU law-making institutions.

The resolution passed by 646 votes to 39, with 13 abstentions.

The final compromise text between the EP, the European Commission and the Council of the European Union aims at promoting long-term shareholder engagement and touches on core corporate governance and stewardship issues.

Speaking at the plenary debate on Monday, Věra Jourová Commissioner for Justice, Consumers and Gender Equality, said that following the political agreement from last year, it is now time to adopt a directive that will foster more long-term, transparent and sustainable capital markets across Europe.

“It will encourage institutional investors and asset managers to look at the long term perspective and consider also environmental, social and governance factors when they invest — this is what our economy needs,” she said.

Among the main features of the new legislation, Jourová highlighted measures to ensure more transparency and oversight on directors’ remuneration, as well as to promote more efficient shareholder engagement.

Jourová also underlined the safeguards to prevent abusive related party transactions, although she noted that “the level of ambition in this respect is reduced from what the commission initially aimed”.Sergio Cofferati, the ‘rapporteur’ leading the legislation at the Parliament’s Legal Affairs Committee (JURI), said on Monday that the legislation represents a step forward in terms of the legal definition of corporate governance in the EU.

“There is a red line running through the whole directive as far as proxy advisors are concerned as well the duty of the company to identify their shareholders.”

“It will encourage institutional investors to look at the long term”

The directive requires institutional investors and asset managers to publicly disclose, on a comply or explain basis, their shareholder engagement policies and investment strategies.

Regarding proxy advisors, they will have to will have to disclose key information related to the advice they have provided.

Cofferati added in a statement after the vote: “Thanks to Parliament’s efforts on this directive, the European Commission has also proposed a specific new legislative proposal on public country-by-country reporting by multinationals on tax matters, which needs to be approved as soon as possible.”

Once approved by the Council of the European Union, member states will have two years to implement the directive. Link