BEIS - Restoring trust in audit and corporate governance

Department for Business Energy and Industrial Strategy

Restoring trust in audit and corporate governance

Global Infrastructure Investor Association (GIIA) is the membership body for the world’s leading investors in infrastructure, and advisors to the sector, who collectively represent nearly US$1 trillion of infrastructure assets under management across 66 countries. Our members are investing today to provide the smart, sustainable and innovative infrastructure needed for our communities and economies to thrive. The investor member base of GIIA is diverse and ranges from fund managers, pension funds, insurers, corporate investors and sovereign wealth funds (a list of GIIA members can be found at http://giia.net/membership). We are therefore well placed to provide the committee with the views of the global infrastructure investor community.

In the UK, GIIA members are responsible for a significant source of foreign direct investment that boosts the UK economy through their investments in various private companies. This includes:

• Major investments in 17 of the UK’s 20 airports, which account for 94.4% of total passengers.

• Supporting almost 120,000 jobs in the nation’s privately owned ports.

• Supplying 2/3 of UK household’s water needs.

• Providing an additional 14 million households with full fibre internet while continuing to invest in 5G technology.

• Producing 32% of the UK’s entire renewable energy capacity.

In relation to the BEIS consultation ‘restoring trust in audit and corporate governance’ we are keen to provide the perspective of institutional investors in infrastructure. This letter therefore acts as a high-level position statement on behalf of the institutional investor community on the issues raised in the consultation paper published on 18th March 2021.

GIIA investors are concerned that the proposed reforms could result in significant changes for private companies. We believe that the reforms as proposed, particularly related to the appointment of independent Directors and the increased accountability attached to these roles, could negatively impact the operations of the UK’s private infrastructure investors, to the detriment of long-term strategic ambitions for Levelling Up, Net Zero and climate resilience.

The main area of concern for GIIA investors is around the proposal to require private companies to appoint a majority of independent Directors to company Boards. GIIA investors consider that such a move would serve to make Boards unwieldy and worsen corporate governance, particularly given that private companies often have multiple owners and therefore multiple Board seats. This could act as an increased administrative and regulatory burden on private companies, reducing efficiency and could ultimately work against the objectives of the review to improve corporate governance, reporting and accountability.

The second area of concern is around the way the review proposes to increase accountability for company Non-Executive Directors (NED’s). It is often challenging for private companies to secure high quality non-executive Directors, given that there is a limited pool of talent from which to call upon within any given sector, with the time and experience to adequately perform such a role diligently. The Government’s reforms in this area propose to increase the burden of accountability on NED’s for relatively modest remuneration which could serve to reduce the appeal of becoming a NED for a private company/PIE, thereby further reducing the pool of talent for companies to acquire Board Directors, and also potentially diminishing the quality of the Director’s that are appointed.

The proposals could pose difficult challenges for private infrastructure investors’ operations in the UK which will play a fundamental role in the transition to post-pandemic growth. As the UK emerges from the COVID-19 crisis and seeks to secure a path to a sustainable economic recovery, it is vital that we are able to maintain the UK’s attractiveness as a destination for domestic and international infrastructure investment. The proposals as envisaged in the review risk damaging investor sentiment to the detriment of international inward investment to UK infrastructure.

For more information about GIIA and the contents of this submission please contact John Kavanagh, Head of Policy and Public Affairs: