The deadline for transposition of Directive (EU) 2017/828 amending Directive 2007/36/EC as regards the encouragement of long term shareholder participation (the “Shareholders Rights Directive II”) expired on June 10, 2019. The Shareholder Rights Directive II aims to enhance shareholder participation and equal rights in decision making. It applies to a wider group of market participants including AIFMs and Management Companies. It imposes new obligations on such entities as regards disclosure of how they integrate shareholder engagement in their investment strategy.
Under the Shareholders Rights Directive II, Management Companies and AIFMs, to the extent that they invest in shares traded on a regulated market on behalf of investor, are obliged inter alia to:
(i) develop and publicly disclose an engagement policy that describes how they integrate shareholder engagement in their investment strategy. The policy shall describe how they monitor investee companies on relevant matters, capital structure, social and environmental impact, and corporate governance or exercise voting rights and other rights attached to shares;
(ii) on an annual basis, publicly disclose how their engagement policy has been implemented, including a general description of voting behaviour, an explanation of the most significant votes and the use of the services of proxy advisors;
(iii) publicly disclose how they have cast votes in the general meetings of the companies in which they hold shares;
(iv) disclose to institutional investors for whom they invest, either on a discretionary basis or through a collective investment undertaking, on an annual basis, how their investment strategy and implementation thereof complies with the arrangement with the institutional investor and contributes to the medium to long-term performance of the assets of the institutional investor or the managed fund. Such disclosure shall include reporting on the key material medium to long-term risks associated with the investments, on portfolio composition, turnover and turnover costs, or on the use of proxy advisors for the purpose of engagement activities.
The Shareholders Rights Directive II will be implemented into the Luxembourg legal framework through draft law No 7402 ("the Draft Law"), which has been lodged with Luxembourg Parliament on 4 February 2019 and at the moment of publication of this newsletter is awaiting a second vote in the Luxembourg Parliament.
The Draft Law amends the law of May 24, 2011, relating the exercise of shareholders' rights in shareholders' meetings of listed companies and introduces a new chapter III placing on Management Companies and AIFMs those obligations discussed in points (i) to (iv) above.