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European Investors calls for enhanced disclosure on the impact of climate change

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19 December 2016 – In the run up to the 2017 Annual General Meeting season, the European Investors’ Association has identified a number of key areas to which it would like to see more attention given by listed companies in the coming year. These key areas have been communicated to the Eurostoxx 50 companies.

Climate change

The Paris Agreement will have a serious impact on almost every listed company. A distinction needs to be made here between the effect of the strict legislation which may be expected, the transition which companies must make to help achieve a CO2-neutral environment and how these factors will impact on cash flow, balance sheet items and profitability.

European Investors calls on listed companies to disclose in their annual statements what opportunities and risks they are confronted with in relation to climate change and how management intends to address them.

Also, companies need to disclose the method used to quantify these opportunities and risks. Most particularly, information will be required about the valuation aspects of climate-related balance sheet items, such as oil or other reserves, loans and provisions. Wherever possible, the company management should provide a comparison of these aspects relative to its peers.

Dividend policy/capital allocation

As it has always been, the way companies allocate the capital trusted to them is essential to investors. Dividend policy is a central issue in this regard. At the moment, most listed companies provide shareholders with no insight into the considerations made when deciding between paying dividend or reinvesting in the company – such that the return on the investment should be more than the capital costs if commercial value is to be created. Companies also provide insufficient information about the underlying considerations when dividend is paid instead of (i) investing, (ii) buying shares, (iii) settling debts, or (iv) making an acquisition.

European Investors calls on listed companies to provide clear information in both the annual report and during the general meeting about how the stated dividend policy is in line with the goal of creating value in the long term. In substantiating any dividend payment the company should explain why this is clearly preferable over any of the above four alternatives for allocating surplus profit (cash in hand). It is essential that a detailed explanation be given based on factors which are specific to the company, such as its earning model, potential value creation capacity and investment opportunities.


Companies are increasingly faced with cyber crime, in which both the frequency and seriousness of such incidents on the increase. IT security therefore needs to become an intrinsic part of a company’s risk management at Board level. Investors are entitled to expect that the Board has developed a cyber strategy which addresses and minimalizes the material consequences of IT incidents, and that they should be informed of this.

Investors need to be sure that the Board sees to it that it is regularly and as fully informed as possible about the IT risks to the company. Ideally, independent external experts should also be involved in this. It is essential for investors that businesses provide transparent reporting on material IT risks and incidents. A good way to do this is to quantify performance criteria in the area of IT security. This would cover the number of vulnerabilities and IT incidents discovered in the company. The costs incurred to identify and remedy such vulnerabilities and incidents should be reported and substantiated in proportion to the damage which might have been incurred had any such vulnerabilities been exploited or incidents occurred. At the same time, information should be provided about the recovery time that a company would require following a possible cyberattack.

Non-executive directors’ obligation to gather information

Last but not least, European Investors wishes to point at the growing tasks and responsibilities of non-executive directors in both volume and complexity.

In our view, it is no longer sufficient simply to blindly trust the information provided by the company. A modern non-executive director obtains information from multiple sources, analyses the attendant factors and actively seeks out the critical issues to ensure that the company has a sustainable earning model and that the company’s management is appropriately challenged in its task of setting out the long-term future direction of the company.

European Investors considers this ‘obligation to gather information’ by non-executive directors to be a necessary requirement if a non-executive director is to fulfil his or her role and position as fully as possible. European Investors requests that non-executive members of the Board make clear in the reporting how they have met this obligation






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