CMVM Recommendations for Securities Issuers on the adoption of sustainability principles in financial information and in dividend, remuneration and operational resilience policies

14 April 2020

The current pandemic caused by Covid-19 involves a potential, but significant, economic impact, generating an inevitable degree of uncertainty for companies and their financial and operational resilience, as well as for investors and other interested parties, among which are included employees, creditors, suppliers and customers.

In view of the developments observed in recent weeks, with significant impact on the entire economy, although dissimilar in the various sectors; and considering the uncertainty regarding the evolution of economic activity in the coming months and the recovery that will follow, the CMVM underlines the relevance of the quality of information to be provided to the market by the Management Boards regarding the current and expected impacts of Covid-19 in the respective activities, as well as the adoption of sustainability principles, based on perspectives that value the medium and long-term and all stakeholders in the life of the company, aiming to ensure the necessary operational and financial resilience in a context of increased risk.

Thus, the CMVM recommends that:

  • Issuers that have not yet held the respective annual general meetings, taking into account their long-term position and all interested parties, take particular care in formulating the corresponding proposals to be submitted to the shareholders with information that is detailed as far as possible on the estimates and assumptions, on impacts verified and estimated for the upcoming financial years, particularly concerning decisions with an impact on the maintenance of a solid and resilient financing structure, based on present and future capital needs, are at stake.

  • Any proposals on the distribution of dividends or the repurchase of shares, some defined in circumstances significantly different from the current ones, have sufficient reasoning, namely on the adequacy of available capital for the purpose, in a context of high uncertainty, demonstrating alignment with the long-term interests of the entity and its stakeholders; and that the same proposals are based on high standards of informative quality that, in a clear and understandable way, provide shareholders with in-depth knowledge of their fundamentals and their framework in the face of the medium-term challenges posed by current circumstances.

  • The remuneration policy for members of the governing bodies and directors is also presented in accordance with concerns, and adequate justification regarding its alignment with the long-term interests of the company and all stakeholders must be presented and explained in the supporting documents and at the general meetings.

  • Financial and non-financial information should, whenever possible and appropriate, mention risks that may likely affect the continuity of the respective businesses in the medium term, as well as possible actions to mitigate these risks.

The recommendations bear in mind:

  • That during recent weeks and due to the current situation, the reformulation of proposals for the application of results by some national issuers is already observable;

  • The CMVM's recent recommendation on the preferential use of telematic means for holding general meetings - which will not always allow full interactivity between the participants and  clarification of doubts related to the previously disclosed proposals, at the meeting;

  • ESMA's recommendation, endorsed and adopted by the CMVM, that issuers disclose as soon as possible all relevant information on the impacts of Covid-19 on their business, financial situation and economic performance; and that the financial reports - in particular the annual financial report for 2019, when it has not yet been finalised or, otherwise, when reporting interim information - reflect both current and potential impacts, as far as possible, based on a quantitative and qualitative assessment;

  • That the Portuguese Government established in Decree-Law No. 10-G / 2020 of 26 March, limitations on the distribution of profits by companies that have resorted to support for maintaining jobs and mitigating business crisis situations foreseen in that diploma. The European Central Bank (ECB) and the European Insurance and Pension Funds Authority (EIOPA) also recommended prudence to the entities they supervise, namely regarding the suspension of dividend distribution, which led to recommendations in sequence made (i) by ASF, through Circular Letter 2/2020, of 30 March and (ii) by Banco de Portugal through a communiqué issued on 1 April 2020, applicable to the entities that each of those authorities supervise.