Ashurst Governance and Compliance Update Issue 13
02 March 2022
02 March 2022
|In this edition we cover the following|
Narrative financial reporting
1. BEIS publishes guidance on mandatory climate-related financial disclosures
2. FCA finalises technical note on climate-related reporting
3. FRC publishes research report on corporate governance reporting by large private companies
4. FTSE Women Leaders Review reports on gender balance and sets new targets, including for private companies
AGMs in 2022
5. PLSA publishes its 2022 Stewardship and Voting Guidelines
6. QCA and Peel Hunt publish mid and small-cap market survey for 2022
7. FRC publishes Audit Committee Chairs' views on, and approach to, audit quality
|NARRATIVE FINANCIAL REPORTING|
BEIS publishes guidance on mandatory climate-related financial disclosures
The Department of Business, Energy and Industrial Strategy has published guidance for companies and LLPs on TCFD-aligned climate-related financial reporting and in light of the regulations for in-scope entities which come into force and apply to financial periods beginning on or after 6 April 2022. For more detail, including a reminder of which entities are in scope and links to the regulations themselves, please see Ashurst Governance and Compliance update, Issue 12.
The non-binding, non-exhaustive guidance is intended to be a factual explanation of the legislation. It contains, in Section 1:
The guidance concludes, in Section 2, with an overview of how the regulations interact with other requirements, regulations and frameworks, including the rules mandated for premium and standard listed issuers by the Financial Conduct Authority, and links to additional information.
FCA finalises technical note on climate-related reporting
The Financial Conduct Authority has published Primary Market Bulletin No.38 in which it confirms the publication of Primary Market Technical Note: TCFD - aligned climate-related disclosure requirements for listed companies (TN 802.1), after the consultation it launched in Primary Market Bulletin No.36, which we covered in Ashurst Governance and Compliance update, Issue 8.
This new note sets out the climate-related disclosure requirements for listed companies, together with a reminder of the FCA's disclosure expectations and supervisory strategy. The note augments technical note 'Disclosures in relation to ESG matters, including climate change' (TN801.1), which the FCA published in December 2020.
FRC publishes research report on corporate governance reporting by large private companies
The Financial Reporting Council has published an assessment of the quality of reporting from private companies who have chosen to adopt the Wates Corporate Governance Principles for Large Private Companies. The report, which was conducted with the University of Essex, shows that the Wates Principles are the most widely adopted corporate governance code used by large private companies in response to the obligations to report on governance introduced by The Companies (Miscellaneous Reporting) Regulations 2018.
The research found that two-thirds of companies required to do so reported on their governance arrangements. Of these companies, 57 per cent relied on a corporate governance code to define their arrangements, 35 per cent relied on alternative governance arrangements and eight per cent failed to report meaningfully. The Wates Principles were by far the most widely adopted governance code (with 77 per cent of those companies adopting a single code using Wates), with the financial sector being the biggest proportionate adopter.
While the FRC acknowledges that it is too early to draw many conclusions, it believes that the research shows that companies are grasping the spirit of the Wates Principles in their governance reporting and that they are using the principles as a tool for 'self-reflection and improvement'. It also believes that companies are seeing annual governance reporting as an opportunity, not a burden.
The research includes examples of good reporting, noting that the majority of those that used the Wates Principles provided some form of explanation of how each Principle was applied. It states that companies tended to disclose more information about how their governance practices and policies matured over the years, such as in relation to the structure and composition of committees, or the role of independent directors. However, across each of the Principles, reporting could be improved. In particular, the report recommends that companies should:
Ashurst comment: The requirement for large private companies to disclose governance arrangements received considerable press and was the subject of a reasonable implementation period. That a third of companies required to do so have not complied with the obligation as to the content of their accounts, an obligation introduced in part in response to the high profile failure of BHS, is only going to increase calls for the government to hasten the constitution of the Audit, Regulation and Governance Authority which will come with significantly enhanced powers of scrutiny and sanction over such disclosures. Those companies taking their Wates Principles reporting obligations seriously may want to reflect on the items reviewed relative to each Principle as part of the research with a view to enhancing their reporting in the future.
FTSE Women Leaders Review reports on gender balance and sets new targets, including for private companies
The FTSE Women Leaders Review, the successor body to the Hampton-Alexander Review, has published its first report on gender balance in FTSE leadership and revised its aspirational diversity targets, extending them to the largest private companies by sales for the first time.
Progress on gender diversity
The Review finds that, as at 10 January 2022:
The Review also reports that for 'Women in Leadership' (defined as the executive committee and direct reports on a combined basis) – often seen as the true measure of diversity in an organisation:
New aspirational targets
The Review has also set out new voluntary targets as follows:
Both targets mirror those set out in 2021 by the FCA as part of its package of reforms to diversity reporting in the FCA Handbook and which were expected to apply to financial periods beginning on or after 1 January 2022. Feedback on the consultation and final rules are yet to be published but are expected imminently.
More drivers of progress in the FTSE 350
The Review recommends that key stakeholders, such as the investment community and corporate governance agencies, should continue to set best-practice guidance, or establish appropriate alternative mechanisms, to encourage any FTSE 350 board that has not achieved the 33 per cent target for 2020 to do so.
Naturally, the Review also suggests that boards currently below the 33 per cent threshold should look to the under represented gender when considering additional appointments.
Encouraging progress in private companies
Of particular note is that the Review will also now consider the largest 50 private companies by sales as being subject to its recommendations. This includes private equity owned companies, partnerships, entrepreneur/founder-owned, family-owned or companies directly owned by management or staff.
|AGMS IN 2022|
PLSA publishes its 2022 Stewardship and Voting Guidelines
The Pensions and Lifetime Savings Association has published its Stewardship and Voting Guidelines for 2022. The Guidelines are intended for use by investors from across the investment chain and with different levels of knowledge and expertise on stewardship, engagement and voting. Having undertaken a substantial review of the guidelines in 2020, the PLSA has this year focused on ensuring they remain relevant amid the challenges posed by a post-Covid-19 world, a fast-moving regulatory environment and increases in the cost of living.
Key issues of concern to the PLSA during the 2022 AGM season include:
QCA and Peel Hunt publish mid and small-cap market survey for 2022
The Quoted Companies Alliance and Peel Hunt have published their 2022 YouGov-led market survey of 240 fund managers and small and mid-cap quoted companies: 'The Eye of the Beholder – The differing perspectives on the UK's equity markets'. It finds that:
FRC publishes Audit Committee Chairs' views on, and approach to, audit quality
The Financial Reporting Council has published its annual research, conducted by YouGov, on the views and approaches of Audit Committee Chairs to audit quality. It covers: