CFD disclosures 6 months on.

Hard to believe, but it is 6 months since the new rules on disclosures of CFD positions came into force. On the 1st June, investors were obliged to disclose positions above 3% taken through CFD’s, in addition to those held directly through equities. Has it made a difference? And more importantly, where do these rules fit with the topical ‘stewardship’ debate?

First, the volumes of announcements expected by some who opposed the disclosure in first place have not materialised. There has been no substantial increase in disclosures of major shareholdings.

However those notifications ARE more informative, and include information on positions that allow issuers to build up a picture of the beneficial ownership. However it is still tricky to establish where the voting rights lie. And to understand where the implicit hedge in the CFD lies. Meantime, the market for CFDs has undoubtedly changed, certainly in the early months of the new rule. Leverage remains was more scarce, negating part of the benefit of a CFD in the first place.

So where next? CESR is looking at an EU-wide regime of short selling disclosures. And the 2010 review of the Transparency Directive could be extended to include disclosure of cash settled derivatives. All in all, IR teams are gradually getting the tools to do the job of building up a picture of who owns – or has an interest in – their shares.

However the bigger picture is probably more important. CFD’s and short positions are some of the tools of those who take short term positions in companies. The debate about ownership of UK Plc and the ‘casino’ markets is very much a live issue. To what extent should we encourage (or force) a situation where shareholders have priorities and behaviours aligned with the long-term interests of the company? Tomorrows Owners – who have spearheaded this issue for many years – have just published an updated view on this. And it’s hard to turn on the radio these days without getting a view from Government on the issue.

But more of that another time. Meantime, IR teams have got what they wanted – enhanced disclosure of derivative positions – balancing the disclosure scales more evenly.

Countdown to Copenhagen – ESG investment now truly mainstream

It used to be easy to write about the need for companies to disclose and discuss their ESG policies. There were a small number of funds involved, with limited assets that were managed in accordance with environmental, social and governance criteria. However, as we run up to the meeting in Copenhagen in December, it is clear that the metrics have changed completely.

According to the US Social Investment Forum, roughly 11 per cent of assets under professional management in the US are now involved in socially responsible investment. Eurosif notes that more than 17 per cent of the asset management industry in Europe is in line with socially responsible investment practices. And the UN Principles for Responsible Investment are subscribed to by more than 170 asset owners managing around US$18 trillion.

And survey after survey seeks to convince us of the alpha to be added by focussing on sustainable industries and companies.

A number of factors have combined to bring this about. The most obvious is a massive increase in awareness of climate change and its possible impact, and the acceptance of widening regulatory impact.

Although there may be an element of “greenwashing” – companies spinning their products and policies as environmentally friendly - it is hard to escape the fact that mainstream investment professionals in Europe are changing their ideas about how investment and responsibility interface to each other.

The purpose of the Copenhagen conference is to forge an international agreement that will oblige countries to curb the growth of their emissions, in the hope that global temperatures do not rise by more than two degrees Celsius over pre-industrial levels. They want to sign a binding agreement on four key points, the details of which will have to be worked out later.

The meeting will – for a while anyway – focus minds again on sustainability, and its link to the fast maturing investment process. Exchanges around the world, as per a new report published this week by the World Federation of Exchanges, are engaged in creating measures to improve information efficiency through sustainability indices and disclosure guidance, to specialist listing and trading platforms.

All of which creates a lens through which IR teams will want to look at their equity stories, and how to present their companies’ ESG strategies favourably to attract – or at least not exclude – new investment.