The week in investor relations: CEO salaries fall, SEC targets securities lending and SWFs continue growing

– The Financial Times (paywall) reported that CEO pay across the FTSE 100 fell by nearly a 10th this year, as companies reined in executive rewards under shareholder pressure during the pandemic. An analysis of annual reports by PwC also showed that many more companies are now adding ESG criteria in their pay policies. Median total remuneration for FTSE 100 chief executives dropped 9 percent in the 2021 financial year to £2.9 mn ($3.9 mn). Almost a third of CEOs received no bonus, either as a result of not meeting targets or the bonus being cancelled or waived – that’s twice as many CEOs as didn’t get a bonus in 2020, said the paper.

– Global Custodian reported that the SEC is looking to ‘follow its European counterparts’ by putting a spotlight on securities lending transactions in a bid to bring transparency to what it called an opaque area of the market. The proposed Exchange Act Rule 10c-1 would require securities lenders to provide the material terms of transactions to a registered national securities association, such as FINRA. The national securities association would then make the material terms of the securities lending transaction available to the public. ‘In today’s fast-moving financial markets, it’s important that market participants have access to fair, accurate and timely information,’ Global Custodian quoted SEC chair Gary Gensler as saying. ‘This proposal would bring securities lending out of the dark. We have put out this proposal for comment, and I look forward to hearing feedback from the public.’

– Pension funds continue to control a dominant piece of the world’s assets, but sovereign wealth funds (SWFs) are growing faster and innovating, according to a Willis Towers Watson Thinking Ahead Institute report covered by Institutional Investor. At the end of 2020, the assets of the top 100 allocators reached $23.5 tn, a 16.4 percent increase over 2019. Of the top 20 largest funds in the world, 10 are SWFs (representing 52.5 percent of the top 20), nine are pension funds (45 percent) and one is an outsourced chief investment officers (2.9 percent). ‘SWFs started later but have been growing faster,’ Roger Urwin, Willis Towers Watson’s global head of investment content, told the publication. ‘Pension funds [enjoyed] faster growth [but are now] paying out a lot more. SWFs continue to accumulate assets, meaning that the nation-states that run [them] continue to put money into [them].’

– According to Markets Media, Stacey Cunningham, president of the NYSE, is expecting the exchange to see more direct listings as companies consider their increased choices in how to go public. Speaking at the Financial Markets Quality Conference hosted by the Center for Financial Markets & Policy at Georgetown University’s McDonough School of Business, Cunningham noted that ‘nobody expected 2020 was going to shatter prior capital-raising records. 2021 has surpassed those records partway through the year so this is a shift in the trend, with companies going public versus staying private.’ Describing direct listings as innovative, she added: ‘I would keep an eye on the direct listing space because we had one in 2018, one in 2019 and now we’ve had seven or eight – so it’s picking up.’

– White goods firm AO World saw its shares plunge 24 percent in a single hour, reported CityAM. The online electrical retailer reported an operating loss of £11 mn in the six months to September 30, 2021, as a shortage of drivers and global supply-chain issues stalled growth in the UK. As a result of the ‘substantial amount of short-term uncertainty’, AO World downgraded its revenue projections for the full year to minus 5 percent year on year. The disappointing results come a year after the UK-based company recorded an operating profit of £16 mn for the same period.

– Fidelity, UBS and State Street Global Advisors confirmed to the FT that, like rivals BlackRock and Invesco, they are looking into the potential of offering exposure to cryptocurrencies, such as Bitcoin. Assets in European exchange-traded products and mutual funds with cryptocurrency exposure have topped €10.5 bn ($11.8 bn), according to Morningstar data, showing the potential appeal of these products for asset managers, said the paper.

– Investors pumped record amounts into South East Asian financial technology companies this year, said the FT, as locked-down consumers switched to mobile payment and banking apps. According to data from analytics group Refinitiv, there were 80 fintech deals worth $3 bn in 2021 – more than what was raised in 2020 and 2019 combined.

– The International Organization of Securities Commissions (IOSCO) said oversight of ESG ratings needs to improve, Reuters reported. IOSCO wants ESG ratings bestowed on companies to be more transparent in their data and the methodology used to create a grade. IOSCO cited research stating that annual spending on ESG data is growing at a 20 percent clip and could hit $1 bn this year, as asset managers try to ensure they are investing sustainably. IOSCO’s calls for more transparency are part of a broader trend: the UK government said before COP26 that UK companies would in 2022 have to reveal climate data.

– In other ESG news, Reuters reported that companies in the most polluting industries that have invested in climate action often find themselves valued below peers that have been slower to do so, highlighting the difficulty of getting shareholders to support sustainability. Investors have put more than $30 tn into ESG strategies, data from the Global Sustainable Investment Alliance showed. But the demand for sustainable investment has yet to remove the pressure to put profits first, and pro-climate analysts are concerned the outcome of UN climate talks earlier this month did too little to help.

Analyses of companies globally by management consultancy Kearney in November, as well as data by Credit Suisse Group published in April, finds companies that lowered their emissions in sectors where doing so was expensive and government regulation was limited were valued less, on average, than more emitting peers. Investors were only found to reward the most emitting companies for taking action on climate change when the cost of doing so was relatively small and government support and regulations were relatively strong.

– Reuters reported that a California judge is unlikely to block a law requiring public companies headquartered in the state to have a minimum number of women on their boards before a December deadline. US District Judge John Mendez said he is still considering OSI Systems shareholder Creighton Meland’s argument that the 2018 law is unconstitutional because it pressures shareholders to vote for women directors. But the judge said during a hearing that Meland has not shown the lawsuit is likely to succeed, meaning he will likely not block California’s secretary of state from enforcing the statute while the case is pending.

The lawsuit is one of several challenging the law, which required companies to have at least one woman on their board by the end of 2019. By the end of this year, boards with five members must include at least two women and larger boards must have three.

Anastasia Boden, who represents Meland, said that while the law may have increased representation, it has led to the patronization of female board candidates.