Dissenting voices

The campaign to head off significant weakening of EU non-financial reporting rules continues unabated as we close in on proposals expected next week.

Yet another group of business organisations have called on the European Union to leave intact the key principles of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

Amendments are expected in the next seven days, with member states calling for everything from tweaks to a full and indefinite postponement of the new requirements.

Objections came from a group including the Ethical Trading Initiative, Fair Labor Association and the German Partnership for Sustainable Textiles. In a joint letter, they call on the EU to leave well enough alone.

The group argues the legislation offers “legal certainty” for both EU businesses and their supply chain partners.

“We therefore call on the Commission ensure that its ‘bolder, simpler, faster’ mission does not result in weakening the CSRD and CSDDD text regarding sustainability due diligence.”

Observers expect the EU to publish proposals for amending the two directives in an “omnibus” project to be launched on Wednesday.

The CSRD and CSDDD have been controversial for some time, but became the focus of a sustained campaign after former European Central Bank president Mario Draghi reported they were a “major source of regulatory burden”.

In a recent Financial Times article, Draghi insisted the directives helped create “internal barriers” that were “far more damaging for growth than any tariffs the US might impose”.

Frost analysis

Speaking of sustainability reporting, it has long been thought the new Trump administration would kill off mandatory climate risk reporting rules for US companies. And indeed, new financial watchdog in chief, Mark Uyeda, acting chair of the US Securities and Exchange Commission (SEC), has signalled he would bury the new reporting measures.

This week, reports reveal that one of the US’s largest pension funds, CalPERS, will argue with Federal officials to push ahead with the disclosure regs.

CalPERS CEO, Marcie Frost, tells Pensions&Investments: “This is a rule CalPERS has long supported…It’s a policy that seeks to ensure investors have clear consistent data related to a company’s climate-related risks.”

It’s a bold move and we are sure the new SEC managers will listen.

Managed out?

Back to the UK and the endless saga of audit reform. It’s looking like the government may have dumped one of its key measures.

Those of you wearied by a reform process under way since the collapse of Carillion in 2018, will be aware that after little action under the Tories (in fact, they launched and then killed off one set reporting proposals), Labour last year included an audit reform bill in the King’s Speech, the UK’s legislative agenda.

One proposed policy was “managed shared audit” or, to put it another way, a big audit firm lording it over a smaller firm as they work together on the audit of a single client.

But reports in the Financial Times suggest this particular idea has likely been aborted, probably as part of the government’s sifting of regulation to ensure it supports growth.

Citing “people familiar with the matter”, the FT reports ministers have “discussed ditching the measure”. Most accounting firms didn’t like it, of course, though there was also widespread confusion about how it might work in practice and bolster audit quality.

This week, the accounting world seemed unsurprised. Glenn Collins, a policy expert at accountancy body ACCA UK said: “Do not lose sight of the overall picture. The key objective is to ensure high quality audits that improve stakeholder trust in business and so encourage investment…and, yes, growth. Market structure per se—including shared audits— should not over-ride the demands of high audit quality.”

Doesn’t sound like the shared audit will be mourned for long.

When push comes to shove

Shareholder activism is heating up in the UK, with a 28% uplift in “publicly-targeted” companies in 2024 following cooling off the previous year. The bad news for boards is that they want you to move abroad.

Figures from Diligent, a governance intelligence and software provider, show the number of activist campaigns increased from 36 in 2023 to 46 last year.

Diligent’s annual shareholder activism report says: “UK based issuers were met with demands as activists questioned valuations seen to be significantly lower than the US, or global peers, with many pressing their targets to redomicile to other jurisdictions.”

The pressure will, of course, add to the woes of the London Stock Exchange, which has fretted over the declining number of listed companies and even campaigned for higher CEO pay to help make the UK market more attractive.

But if UK corporate leaders think being CEO in the US is a sunnier proposition, think again. Diligent says the number of US CEOs moving on from their role after an activism campaign “almost tripled” in 2024.

Jim Rossman, Barclays’ global head of shareholder advisory, tells Diligent: “The grace period or the civility of not targeting the CEO has now gone.”

Wonder where they got that from?