A recent ISS report in the Harvard Law School Forum on Corporate Governance provided a cohesive review of EU legislative initiatives and their impact on annual meeting agendas, including the Corporate Sustainability Reporting Directive, the proposed directive on Corporate Sustainability Due Diligence, the Directive on gender balance on company boards, and the Gender Pay Transparency Directive.
These initiatives have established a long-term focus on governance through various disclosure measures, increasing shareholder involvement, and specific courses of action. Notably, all the directives and proposals could also apply to large global companies that operate or list their stock in the European Union.
The selection of EU legislative initiatives that will have impact on shareholder meetings include:
- The Corporate Sustainability Reporting Directive, which went into effect earlier this year, applies to all large companies and all companies listed on regulated markets in the EU. The directive also requires extensive environmental and social disclosures.
- The Corporate Sustainability Due Diligence Directive, currently at the European Parliament and the Council for approval, applies to non-EU companies that have a net EUR 150 million revenue generated in the EU and 40 million for the secondary group. The CSDD Directive could become the most far-reaching human rights and environmental due diligence regulation globally. The draft includes due diligence requirements beyond Tier 1 suppliers, presents civil and directors’ liability risks and increases reputational costs.
- Gender Balance On Company Boards, which went into effect late last year, requires all EU-listed companies to have “members of the underrepresented sex” in at least 40% of their non-executive director positions or at least 33% of all director positions by June 2026.
- Without being mentioned in this review, the Pay Transparency Directive, just approved by the Council of Ministers, will also have a significant impact on corporate governance in Europe and beyond. The law will require companies with more than 250 employees in an EU member state to provide annual public reporting on their pay data. Employing between 100 and 250 employees will trigger a triennial reporting requirement. The directive creates a new approach to pay equity and transparency in the EU.
The review also provided some notable themes and potential impacts on annual general meetings across these legislative pieces, including executive compensation, director elections, auditors and audit committee, and discharge of board and management.
The report concluded that current and upcoming legislation will “bring about a combination of disclosure requirements and changes to corporate governance practices in companies. Additionally, companies will be subject to increased transparency of many of their corporate activities and will be held to a higher standard regarding human rights and sustainability practices.”
