Promoting good corporate governance and sustainability policy

Eumedion participants have been working to further improve the integration of the principles of the Dutch Stewardship Code into their policies and reports. This follows from the today published second Implementation Progress Report.

Compared to the first report (2019), this second report includes further qualitative assessments of the various ways Eumedion participants seek to comply with the Code in a meaningful way. As in 2019, the report addresses the key focus areas of transparency around voting behaviour and engagement programs. Additionally, the current report also discusses if and how participants communicate with other relevant stakeholders of investee companies, in order to enhance their engagement with these companies.

As in 2019, the report shows a high level of compliance with the requirements on voting behaviour transparency. In addition, the report presents the various methods used by participants to explain 'significant votes'. The report discusses and reiterates the importance of providing adequate and easily accessible information to show how participants use their voting rights to contribute to meaningful stewardship outcomes, better checks and balances within Dutch listed companies and long-term value creation of these companies. With regard to engagement programs, the report paints a similar picture. Here, too, the results show that participants can further improve their disclosure on engagement efforts by enhancing the consistency between their reporting on the selection and prioritisation of engagement themes, the objectives and targets that accompany those themes, and the subsequent results.

Lastly, the results confirm that collaboration with other shareholders is common practice among participants. However, it often remains unclear how communication with other stakeholders of an investee company takes shape. Striving to understand the aspirations and motivations of other relevant stakeholders of the company (e.g. banks, creditors, customers, suppliers, the works council and NGOs) may advance the goals of stewardship. Participants are therefore encouraged to show more clearly what their approach is to this aspect of the Code, and if and how such communication, in practice, informs their engagement activities.

The position paper ‘Towards a global, investor focused standard setter for corporate non-financial reporting’ that Eumedion published today, calls on the IFRS Foundation (‘Foundation’) to expand its mission. The Foundation should establish a separate standard setting board for non-financial reporting, next to the existing International Accounting Standards Board for financial reporting. The Position Paper concludes an extensive consultation following the publication of Eumedion’s Green Paper ‘Towards a global standard setter for non-financial reporting’ published on 30 October 2019 (‘Green Paper’).

The Green Paper provided a sound starting point for a broad discussion with stakeholders. Nine respondents provided us with written feedback. The subsequent evaluation of all the input received, also provided a firm basis for the other stances in the position paper. Most notably that investors struggle to assess how a company creates long-term value and how a company lives up to the valid needs of society where non-financial performance matters; that enforceable and consistent international standards are needed to ensure that non-financial reporting is faithfully represented; and that the auditor should provide more assurance on the management report: reasonable assurance on certain non-financial key performance indicators, and limited assurance on the entire management report. Eumedion publised a feedback statement on 24 July.

The position paper further acknowledges the EU’s strong commitment to a sustainable future. Eumedion would welcome a leadership role of the EU that clearly recognises the global nature of the challenges faced; the need for, ultimately, global reporting standards; and the necessity of a governance structure of the standard setter that fosters international buy-in from jurisdictions whose commitment to a sustainable future is similar to the EU’s.

In the above light, Eumedion is pleased that the EC Commissioner Mr. Dombrovskis recently reiterated his stance that ‘… non-financial reporting standards would be open, transparent and inclusive, as we want to avoid fragmentation of global capital markets’. Eumedion remains confident that the IFRS Foundation involvement herein will remain part of the discussion on how to realise this vision.

We are also pleased to learn from the minutes of the IFRS Foundation Trustees & Due Process Oversight Committee as published last Friday, that the Trustees decided, as part of a strategic review, that a consultation paper will be published following ‘the increasing demand for global standards that provide comparable, decision-useful and auditable information to investors and other interested stakeholders’.