Report
While revising the Shareholder Rights Directive (SRD), the European Commission must ensure stronger shareholder rights, greater transparency in voting and engagement practices, and more harmonised rules across Member States to encourage long-term shareholder engagement.
Finance Watch welcomes the European Commission’s initiative to revise the Shareholder Rights Directive (SRD) to reduce fragmentation across capital markets and remove barriers that currently hinder cross-border investment within the Single Market. Finance Watch sees the SRD as instrumental to:
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allow shareholders to participate in the governance of companies through their rights attached to voting shares, and, in turn,
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require shareholders – in particular asset managers and institutional investors – to disclose how their engagement activities align with the long-term interests of their companies.
Finance Watch therefore supports the intention of the SRD II to not solely address the rights of the shareholders, but also their responsibility as shareholders. As noted in the SRD II, the financial crisis had revealed that shareholders in many cases supported managers’ excessive short-term risk taking. Yet, for these complementary purposes to consistently interact, the SRD should provide the rights for the investors to have a say on the long-term direction of the company, and therefore on its strategy, including on sustainability matters.
While the SRD I and the SRD II have contributed to reinforcing shareholder rights, facilitating the voting process, integrating long-termism and reinforcing transparency amongst shareholders, legislative barriers remain to empower shareholders and provide transparency on voting behaviours. The SRD II therefore requires adaptations to meet the objectives stated above:
- The flexibility in the transposition of the rules has led to heterogeneous rules across Member States, increasing complexity for shareholders to exercise their rights.
- Shareholders sometimes have a limited say on matters that are key for the long-term interests of companies, in particular regarding sustainability matters and the adoption of a transition plan, under the rationale that these relate to strategic decisions, which are the responsibility of the Board of Directors. This defies the requirement that shareholders should report how their engagement activities align with the long-term interests of the companies.
- The engagement policies and disclosures on voting behaviours remain hardly comparable, leading to challenges for asset managers and institutional investors to evidence that they credibly engaged with their investee companies.
