On the go: A tiny proportion of institutional investors across Europe are ready to comply with the EU Shareholder Rights Directive II coming into force this year.
The objectives of the directive include increasing transparency in the investment chain and holding investors accountable for the integration of environmental, social and governance factors in investment decisions, as well as the level and quality of long-term shareholder engagement.
The amended version of the directive, which was published in May 2017, will be implemented in EU member states in June 2019. Investors will be required – on a comply-or-explain basis – to report publicly on their engagement activities and voting decisions.
With the aim of enhancing the stability and sustainability of EU companies, the directive is part of a push to align the interests of companies and managers with owners and end beneficiaries.
Only a staggering three per cent of EU institutional investors said they believe their organisation meets all the requirements of the directive, according to research by Hermes Investment Management in its Shareholder Rights Directive survey published on February 12.
Surprisingly, awareness of the directive is also low in the UK with just 45 per cent of institutional investors knowing of the directive. Only 8 per cent said they believe their organisation already complies with it and 47 per cent do not know either way.
The update to the UK stewardship code, which was out for consultation in January, will look to create a higher tier of stewardship practice above the amended directive.
Among UK investors, some still see environmental, social and governance considerations as an ethical consideration, rather than a means to gain outperformance.
Only 47 per cent said they believe that companies that focus on ESG issues, and corporate governance in particular, produce better long-term returns for investors.
This was the lowest score of any country, despite the move by the Department of Work and Pensions in September to enshrine ESG into trustees’ fiduciary duty.
The survey also found that:
42 per cent of European investors surveyed have not heard of the directive.
German respondents showed the highest levels of awareness of the directive at 88 per cent, whereas only 36 per cent of Italian investors know what is coming.
93 per cent of Spanish investors are unsure of the steps they need to take to comply with the directive.
Alarmingly, no investors in Spain or Italy fully comply with the requirements.
Commenting on the reforms, Saker Nusseibeh, chief executive of Hermes Investment Management, said: “It is extremely concerning that 42 per cent of investors have not heard of the directive, and there is a real danger that a lack of education and preparedness to meet its requirements will result in it failing.”
Dr Hans-Christoph Hirt, head of Hermes EOS, at Hermes Investment Management, said: "The astonishing degree of ignorance about the directive’s requirements amongst investors in most parts of Europe reflects the lack of real progress in many member states.”
The Hermes research was conducted by Citigate Dewe Rogerson among its panel of European institutional investors, including asset owners and asset managers, during December 2018. A total of 175 responses were collected from the UK, the Netherlands, Germany, Italy, Spain and the Nordics.
