Investors risk failing on stewardship, warns Hermes

Feb 20, 2019
Just 3 percent meet requirements of Shareholder Rights Directive II, notes new research

‘Investors across Europe are at risk of ignoring their role as responsible stewards’ – that is the conclusion of new research from Hermes Investment Management in a survey of 175 European institutional investors, showing that few investors have implemented the European Shareholder Rights Directive II (SRD II) in its entirety. 

The survey by the £33.5 bn ($43.6 bn) fund manager finds that just 3 percent of institutional investors across Europe believe their organization already meets the full requirements of the directive, while an equally shocking 43 percent of European investors have never even heard of SDR II.

While the directive – which aims to encourage long-term thinking and increase transparency – has not yet come into force, it needs to be implemented by EU member states this year. 

Hermes’ research also shows that preparedness – and even awareness – of the updated directive vary across member states: German respondents show the highest levels of awareness of SDR II at 88 percent, says Herme; at the other end of the scale, just 36 percent of Italian investors know what is coming.

Spain also receives special mention, with researchers noting that 93 percent of Spanish investors are ‘unsure of the steps they need to take to comply with the directive and, alarmingly, no investors in Spain or Italy fully comply with the requirements.’

Describing these two countries as ‘laggards in comparison to their European counterparts’, Hermes notes that ‘despite a public consultation in Spain and legislative text being issued in Italy, awareness of the directive is at low levels in both countries at 42 percent and 36 percent, respectively. 

‘There is a real risk of late or ineffective implementation and the possibility of a lost opportunity for companies and investors in both countries if the changes the directive envisages remain a low priority for governments.’

Not all bad

There are positives, however, with Dr Hans-Christoph Hirt, head of Hermes EOS (the fund manager’s stewardship and engagement team), noting that high levels of ‘appreciation and understanding’ around ESG in some countries coincides with a higher awareness of the incoming directive update. 

Almost two thirds (73 percent) of Dutch and 68 percent of UK investors ‘believe companies that focus on ESG produce better long-term returns,’ according to Hermes, ‘while 73 percent of German respondents believe the consideration of ESG factors is part of their fiduciary duty.’ 

The second-highest SDR II awareness is seen in the Netherlands, at 79 percent, but the figure is much lower in the UK: 45 percent. Hermes says ‘this is likely to change as the UK catalyzes a more ambitious set of policies with the update of its stewardship code and, in turn, guidance on implementation of the directive.’

‘The survey results have served as a barometer of where member states are in the implementation of the directive and whether obligations have been effectively communicated to investors,’ says Hirt in a statement. ‘The astonishing degree of ignorance about the directive’s requirements among investors in most parts of Europe reflects the lack of real progress in many member states and does not bode well for the achievement of the directive’s underlying objectives.’

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