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ICYMI, Governance Made a Comeback

A change of tone under the Biden administration is making waves internationally.

In a week shortened for many by Easter, governance made a comeback, in the form of Janet Yellen’s proposals for a global corporate tax rate, partly as a means of getting US big tech to pay a fairer share. Even so, environmental and social issues either provided the backdrop or were front and centre in most other news impacting investors and corporates.

US Treasury Secretary Yellen said President Biden’s US$2 trillion infrastructure plan would be paid for by a 28% US corporate tax rate and international coordination to combat tax avoidance, including an agreed minimum level of 21%, thus ending a “thirty-year race to the bottom”.  The US plan, discussed at G20 virtual meetings on Wednesday, heads off regional and national plans for digital taxes, but is squarely focused on ensuring its tech giants pay more tax abroad.

Separately, Yellen confirmed the new US administration’s continued focus on climate, working domestically to ensure tax and economic policies support climate goals and internationally to identify climate-aligned investments “and encourage financial institutions to credibly align their portfolios” with the Paris Agreement. US Climate Envoy John Kerry revealed plans for an executive order to mandate climate disclosures in comments at an IMF meeting, which also saw the unveiling of a dashboard to support policy development on climate change mitigation and adoption.

The need for further US regulatory action was highlighted in a new Ceres report, while the limits of corporate compliance with voluntary disclosure regimes, specifically TCFD, was noted by the Financial Stability Board.

Meanwhile, the business pages reflected multiple ESG challenges for investors. Following research showing that new coal power capacity in China last year offset record decommissioning in Europe and the US, Anglo American announced divestment of its South African thermal coal interests. CEO Mark Cutifani said “we must continue to act responsibly”. But the creation of Thungela Resources will not reduce real world emissions, only giving Anglo’s investors the choice of taking up an offer of one coal-tinted share for every 10 newly-cleansed ones.

Investor priorities will have been a key factor in the decision by car manufacturers to support a WWF-led moratorium on deep-sea mining in the Pacific and Indian oceans. The exploration could supply BMW, Volvo and others with the rare earth minerals needed to power batteries in electric vehicles, thus reducing reliance on Chinese mines, but the long-term consequences of under-water extraction are not yet understood.

Annual statements reflected a continued investor focus on climate issues, with LGIM reporting a 63% increase in its engagement levels with corporates on climate-related risks in 2020. But it was social and governance issues, specifically employee conditions and dual class share structures, that put UK investors off the country’s biggest recent IPO.

A WEF report on the pandemic’s impact on gender equality kept social issues firmly on the agenda, with NBIM, the world’s largest sovereign wealth fund, unveiling a new investment policy reflecting their growing resonance for investors. One feels Yellen would approve.

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