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The year of the involvement of Spanish investors

"The transposition in Spain of the Involvement Directive is bringing the best international practices to the Spanish market, especially for investors and managers."

During 2022 the transposition of the Directive (EU) 2017/828 amending Directive 2007/36/EC (Shareholders' Rights Directive) in terms of promoting long-term shareholder involvement (SRD II). The Directive is a key part of the European Action Plan for Company Law and Corporate Governance launched in 2012 with the aim of creating “a modern legal framework for greater shareholder participation and company viability”. The Plan highlights the short-termism of investors revealed by the financial crisis and the will of the Board of Directors to refocus on corporate sustainability: "if the majority of shareholders maintain a passive attitude, do not seek interaction with the company and do not exercise their right vote, the functioning of the corporate governance system is less effective”.

In 2020, the involvement obligations for insurers and pension funds were regulated in Spain, taking advantage of the transposition of their respective Directives (IDD and IORP II, both from 2016), which came into force last year, as well as the advisors of vote: notification to the CNMV, publication of its Code of Conduct and annual compliance information. It is included in the Draft Law on the Securities Market and Investment Services, which regulates for the first time the figure of proxy advisor.

But the key piece of legislation was the 5 / 2021, which modifies the Law on Capital Companies, and other Laws such as those on Collective Investment Institutions, Venture Capital Entities, Audit of Accounts and Stock Market. Institutional investors and asset managers are required to be transparent in their relationship with issuers, and now they have to define, publish and comply with their voting and involvement policies, integrated into their investment strategy, including environmental, social and security factors. good governance (ESG), linked to performance, risks, long-term objectives. Managers are additionally required to publish how they meet the investor's mandate in all these respects. Finally, everyone must report their involvement activities and the management of their conflicts of interest.

Although insurance companies, the investors traditionally most committed to involvement and voting at meetings, already began in 2021 to vote responsibly and get involved with the companies with the most weight in their portfolios, it is this year, with the entry in force of the regulations that affect asset managers, when the activity has intensified. The role of managers is key since most investors (insurers, pension plans, private portfolios) delegate investment decisions, and now voting and involvement, to them.

Both, investors and managers, are beginning to develop their policies and activities in a responsible and reasonable, proportional but firm manner, already noticing an increase in participation in meetings, greater opposition to conflicting points, such as remuneration or those related to Board or the capital of the companies and, as a novelty, a demand for climate action and sustainability plans to be presented for the approval of the shareholders.

Finally, the technical implementation standards, to facilitate interaction between the agents of the issuer-investor property chain, were published through the Execution Regulation (EU) 2018/1212 of requirements for the identification, transmission of information and facilitation of the exercise of shareholders' rights, which affects issuers, central depositories, global and local custodians, asset managers and owners. Although its development is making reasonable progress, there are still pending fringes, such as a common definition of “shareholder”, which make it difficult to achieve the objectives of the Regulation.

In conclusion, the transposition in Spain of the Involvement Directive is bringing the best international practices to the Spanish market, especially for investors and managers. There is still a lot of regulation pending, such as finalizing the details of the environmental and social taxonomy, defining the metrics and regulating ESG data and service providers, specifying the sustainable information obligations of companies, the responsibility of administrators and due diligence in the supply chain. But we are on the right track. The announced Code of good practices for investors of the CNMV (Stewardship Code) is excellent news that will give a boost to the Spanish ecosystem of responsible investment.

Juan Prieto

Founder of Corporance Vote Advisors

Madrid, May 8, 2022

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About the Blog

Blog Tribute Antonio Moreno

Blog Tribute Antonio Moreno

Blog tribute to Antonio Moreno Espejo, who was Director of Authorizations and Registrations, National Securities Market Commission (CNMV), co-director of the Financial Markets Forum of Fide and Member of the Academic Council of FIDE. This collective blog contains articles and reflections generated by people who regularly participate in the Financial Markets Forum of Fide.

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