On January 31, 2018, the European Commission ("Commission") published the final report by its High-Level Expert Group on Sustainable Finance (HLEG) ("Final Report"). On the same day, the Commission published a press release stating that it welcomes the Final Report.
The Commission established the HLEG to help develop an overarching and comprehensive EU strategy on sustainable finance. It requested advice regarding how to "steer the flow of capital towards sustainable investments; identify steps that financial institutions and supervisors should take to protect the financial system from sustainability risks; and deploy these policies on a pan-European scale."
The HLEG's Final Report presents various corporate governance recommendations in order to develop a sustainable financial system. The HLEG recommendations include:
- The extension of stewardship principles for institutional investors, for example, by amending the Shareholder Rights Directive. Investors should have governance practices consistent with national requirements and the International Corporate Governance Network Global Stewardship Principles, ensuring in particular the alignment of their own incentives with long-term objectives and having sufficient expertise to address long-term sustainability risks.
- Investors should continuously engage with investee companies with the aim of preserving or enhancing long-term value on behalf of clients or beneficiaries. The extraction of short-term profits at the expense of long-term value creation should be avoided, and investors should integrate environmental, social and governance factors into stewardship activities.
- Investors with voting rights should seek in their voting process to make decisions addressing concerns over investee companies' sustainability performance.
- Requiring company management to develop a climate strategy and describe the company's approach to sustainable development goals.
- Ensuring that remuneration policies and individual executive employment contracts are consistent with the long term, including sustainability goals.
The full text of the Commission's report is available here:
The Commission's press release is available here:
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