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EFAMA response to EC consultation on Sustainable Corporate Governance

Stewardship | Sustainable Finance
08 February 2021 | Policy position
Sustainable Finance

Investors would benefit from an EU legal framework with due diligence guidelines and reporting requirements for companies in the real economy. This framework should be consistent with the reporting requirements in the revised NFRD and the disclosures in the Sustainability-Related Disclosures regulation (SFDR). At the same time, any framework for supply chain due diligence should not impose a competitive disadvantage for EU companies. It is important to promote and cooperate with similar initiatives at an international level (e.g., through the OECD and the International Platform on Sustainable Finance).


Directors’ duty of care and stakeholders’ interests

• Being able to clearly define and identify stakeholders and their interests is essential to manage sustainability risks and opportunities. Only shareholders, employees and customers are clearly defined and can be identified by companies. The other categories of stakeholders described in the consultation are still too vague for close-ended definitions to apply. Therefore, their identification needs to be left to a materiality assessment carried out by each company.

• Corporate directors can ensure that there are adequate procedures in place to identify, prevent and address possible risks and adverse impacts on stakeholders. Nevertheless, requiring companies to set up measurable (science-based) targets is premature. Existing methodologies and the current ESG data landscape do not support this objective.

• We strongly oppose the assumption whereby shareholders are only interested in short-term financial performance. European Supervisory Authorities, as well as EFAMA, have not found sufficient evidence of investor-driven short-termism in European capital markets that would justify such legislative measures.

• To enhance directors’ accountability, the Commission could consider, in due course, initiatives beyond SRD II to further enhance long-term engagement between investors and their investee companies. Shareholders, to perform their role as stewards of the companies they invest in, need to be equipped with proper tools.

• We advise against an enforcement role for stakeholders in relation to the directors’ duty of care. It would put the accountability of directors to shareholders and stakeholders on the same rank and raise several unintended practical and legal issues. It would create a mismatch between stakeholders, who would exercise control over the company’s decisions, and the company’s shareholders, who bear the economic risk linked to the business.

Due diligence duty

• We support a balanced and proportionate definition of due diligence duty, consistent with international principles and, in particular, the OECD guidelines for multinational enterprises and the related due diligence guidance.

• In principle, we support the adoption of a principle-based approach consisting of guidelines and transparency requirements. However, it remains challenging to define clear preferences around the content of such possible corporate due diligence duty without knowing its specifications or being able to assess its impact.

• To reduce competitive disadvantages for the EU industry, companies not established in the EU but listed in EU regulated markets should be subject to the same obligations.


• SMEs should have lighter reporting requirements and, possibly, be subject to a “comply or explain” approach whereby they could refrain from applying due diligence processes if the risk of adverse impacts is less relevant in view of their specific business model.

Other elements of sustainable corporate governance

• Remuneration of directors: in principle, we support variable pay being linked to the achievement of long-term sustainability goals. However, prescriptive requirements would be disproportionate and fail to adapt performance criteria to different activities, risks, and investment strategies.

• Enhancing sustainability expertise in the board: we believe that any prescriptive measures should be considered with great caution. Instead, the Commission could consider initiatives enabling shareholders to influence the appointment of directors.

• Share buybacks: We do not see merits for further legislative action in this area and recommend competent EU bodies to carry out further research on shareholder pay-outs and the drivers of short-termism in the EU. Academic literature provides broad evidence to counter the assumptions that set 
the basis for the consultation paper.

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