IR Monitor – 1st March 2023

This week’s news

AGMs: Preparing for the season 

In preparation for the AGM season, Vanguard and Georgeson highlighted the key take aways for companies in a webinar last week. Expectations are for FTSE 350 companies to hit the 33% board gender diversity mark. Vanguard also noted that it will be expecting companies to disclose how they plan on preventing the risks of not meeting diversity quotas and how they balance diversity of skills and personal characteristics on the board. Discussions of executive pay and remuneration highlighted the importance of addressing societal pressures, such as the cost of living crisis, when making any decisions. Despite this, ESG focus and climate votes should only be included if they have clear purpose. Companies should remain mindful of greenwashing and should clarify all relevant metrics. The shared themes across all talking points were transparency and specifics: companies are assessed on a case-by-case basis.

CMA takes action on greenwashing

Companies and individuals who partake in greenwashing, knowingly or not, risk being fined up to £300,000 (or $358,000) as part of the Digital Markets, Competition and Consumer Bill, reports IR Magazine. Fashion brands ASOS, Boohoo and George at Asda have all been caught in the firing line and investigated by the Competition and Markets Authority (CMA) for falsely claiming to meet ESG credentials and for advertising products with descriptions that were ‘too broad and vague’. In October 2022, the Financial Conduct Authority (FCA) issued a consultation and proposed agile methods to restore consumer trust in sustainable products and to protect UK-based funds from greenwashing. With the new bill in place, the FCA expects the regulator’s final rules to be released in the first half of 2023.

Investors should not expect superior returns from ESG – Vanguard

Tim Buckley, Chief Executive Officer of Vanguard, has maintained that Vanguard is “not in the game of politics” in a wide-ranging interview with the Financial Times. Despite having pulled out of the Net Zero Asset Managers initiative in December, Vanguard’s position is that it remains committed to managing climate change risks. Buckley believes that it would be “hubris” to presume that Vanguard knows the right strategy for every single company that it invests in. Instead, his priority is making sure that risks are being “appropriately disclosed and that every company is playing by the rules.” While Vanguard is standing firmly by its decision, activists and politicians are accusing it of failing to rule out new investments in fossil fuel industries. The bottom line is that Vanguard’s strategy is not underpinned by investing in ESG funds which it believes do not guarantee outperformance any more than the likes of broad index funds.

Companies are rolling the dice on overseas markets: the case of Flutter

Gambling giant Flutter Entertainment has given itself a two-month window to reach a decision regarding the prospect of listing on the NYSE. The consideration of an additional listing in the US has drawn attention to the seemingly more lucrative market across the pond. Flutter’s management said an additional listing could “yield a number of long-term strategic and capital market benefits” as indeed could a primary listing in the US. Benefits include “access to much deeper capital markets” and “greater overall liquidity in Flutter shares”. The development won’t be greeted with delight by the UK government, which is pursuing reforms to try to make London a more attractive place to do business. The Investors’ Chronicle explores the case of Flutter along with a number of other high profile examples including Softbank, Saudi Aramco and Ferguson.

Buffett: in defence of share buybacks

Warren Buffett has written to the shareholders of Berkshire Hathaway in the shortest letter he has published for decades,  as reported in the Financial Times. Berkshire’s $22.8 bn loss last year did not defer the 92-year-old investor from iterating the benefits of Berkshire’s stock repurchases, as well as those of the dozens of publicly traded companies it owns. The letter was written in connection with a new tax on stock buybacks which recently came into effect in the US under the Inflation Reduction Act. Supporters of the tax argue that buybacks do little to bolster the economy. Buffett disagrees: “when you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive)”.

And finally… lying or bluffing? Or puffing?

Ever heard of ”bluffing”? Well, lawyers call it ”puffing.” The New York Times has weighed up the implications of a criminal complaint against Carlos Watson, the founder of Ozy Media, which alleges Watson lied about the numbers, fabricated documents and even asked a colleague to impersonate an important customer on a conference call with Goldman Sachs. A more interesting and subtle accusation is that, when making his initial case to potential investors, Watson also named other investors in the deal – even though not everyone on his list had, in fact, committed the money.  This part of the complaint doesn’t sound far off a practice that seems all too common in business.  And, indeed, U.S. courts have adopted a ”puffery doctrine” which allows leeway for sweeping statements and vagueness due to their historic presence in the process of buying and selling.

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