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A year Ahead

 

2020 was predicted to be a year that continued to drive change in our industry and take us to new pastures. No one could have known just how true that would be.

Our first Ahead event of 2021 covered a range of past, present and future hot topics across share registration and corporate governance. ‘A year Ahead’ welcomed expert speakers Jai Baker, Link Group’s Head of Industry, and Caroline Emmet, Company Matters’ senior technical manager, to explore what changed in 2020 and what to look out for as we set sail for 2021.

Watch the full event here

How will Brexit affect us?

Brexit has arrived. While the impact is still mostly to be seen across our industry, there are some immediate changes.

Jai explained that our new UK passport rights prevent us marketing our regulated products in the EU in the way we did before; we can still deliver our share dealing and dividend reinvestment plans to EU customers but can’t explicitly promote them. This affects the shareholder journey and some may not be eligible for these products at all, but Link Group will continue to support all customers who require those services.

Another big change for us is that CREST, the UK and Irish central depository system, won’t be able to offer services to the Irish market. We have been and will continue to work with Euroclear Bank – the replacement CSD provider for Ireland - and other market peers to develop a new holding model and market infrastructure for Ireland that will go live in mid-March. We will keep you updated.

Has COVID-19 accelerated the progression of AGMs?

2020 was a huge year for issuers and their GMs. With reliance on shareholder attendance, many adopted a hybrid approach – hosted live in a room with virtual attendees. Temporary UK legislation allows for fully virtual or closed door meetings only until 30 March, but Jai expects an update from the UK government to enable all these formats to continue going forward, perhaps with legislative change defining what companies can readily do.

Shareholders want hybrid. In a survey by us and the UK Shareholders Association, a surprising 81 per cent of retail shareholders were in favour of the hybrid approach while a more expected 89 per cent were against fully-virtual meetings. Is hybrid the future? Jai thinks so; the shareholder voice is now being heard.

Proxy voting changed rapidly, too. 2019 saw average share capital voting at 50 per cent, which increased to 64 per cent in 2020. Digital voting increased from 39 per cent to 53; the first time we’ve seen it overtake paper.

To make the right choices for their shareholders, issuers must listen and act in the continued move towards digital throughout 2021.

Dematerialisation and intermediation

Brexit planning put a hold on dematerialisation some years ago but the question of intermediation and how dematerialisation may resolve the investor engagement has crept up the agenda. Though we don’t yet know what changes are in store for UK deadlines, the new CSD model for Ireland, and the regulations under which it will operate, dictate that a fully dematerialised market will be required by the beginning of 2023.

This means we will implement a new project soon to commence the dematerialisation plan certificated shareholders in Ireland while we wait to hear updates from UK government on its plans for the future.  To that end, we eagerly await the report of the law commission – including a review of intermediation and shareholder rights generally.

Climate change and ESG-related oversight

Alongside Brexit and COVID-19, ESG (environmental, social and governance) was and is another driver of change in our industry. Higher reporting expectations mean boards must think carefully about addressing the impact of climate change and other ESG factors, and the governance and reporting of their action plans.

New climate-related financial disclosures (TCFD) cover four themes: governance, strategy, risk management and targets. The FCA expects all premium-listed commercial companies to report against TCFD in next year’s annual reports.

While this doesn’t cover investment companies, or AIM or private companies for now, Caroline flags that we should expect this to change over the next two to four years.

Companies will need to up their game – whilst a growing number include climate-related narrative in their annual reports, few explain how it informs their decision-making, business model and strategy, and there is often a disconnect with the financial statements.

Investor groups are also pushing for companies’ financial statements to be aligned with the Paris Agreement target to achieve net zero carbon emissions by 2050. For now, the focus is on companies most exposed to climate risk, but all boards should be prepared for greater scrutiny.

How can companies meet the bar?

Eversheds and KPMG released a study in 2020 to see how the corporate world is responding to climate change, based on interviews with directors and C-suite executives from 500 globally-leading companies. 87 per cent of them believed they understood the climate-related risks their companies face, but 74 per cent recognised the need for some or considerable improvement in the board or management’s skills to deal with these risks.

Company secretaries and boards need to be considering a number of governance housekeeping matters, for the board and all board committees. However, the onus is also on individual directors to make sure they are upskilling on climate-related challenges and wider ESG topics. Investors and regulators are convinced there is substantial value at risk, so their scrutiny of these matters will not diminish. 

 

Watch the full event here

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