Ashurst Governance & Compliance Update – Issue 50

AGMs in 2024

1.  Pre-Emption Group publishes annual monitoring report 

The Pre-Emption Group (PEG) has published its first report on the use of its 2022 revised Statement of Principles for the disapplication of pre-emption rights for UK listed companies. For a reminder of the principal changes made in the 2022 Statement of Principles, see our article here.

In summary, the report shows 'widespread adoption' of the 2002 Statement of Principles as well as 'widespread shareholder support' for them. 

Key findings

Of the 289 FTSE 350 companies holding their AGM between 4 November 2022 and 31 July 2023 and seeking pre-emption disapplication, the research underpinning the report revealed:

• 55.7 per cent (161 of the 289 companies) sought an enhanced disapplication authority (i.e. above the 5 per cent of issued share capital threshold for resolutions seeking the disapplication of pre-emption rights either for general corporate purposes or for a specified capital investment prescribed in the 2015 Statement of Principles and as permitted under the 2022 Statement of Principles);
• 65.7 per cent requested authority for a specified capital investment, in addition to an authority for general corporate purposes; and
• 98.3 per cent had all disapplication resolutions passed by shareholders, with only a small number encountering significant dissent (see below).

The report contains a useful table showing a more detailed breakdown of disapplication requests.

Other points of note include:

• References to the 2015 Principles: PEG's view is that referencing the 2015 Statement of Principles is no longer best practice. The report emphasises that the 2022 Statement of Principles now constitutes best-practice and companies should aim to align their requests accordingly, even if they do not seek the full amount of enhanced authority permissible.
• Shareholder support: 'Of the FTSE 350 companies which tabled a resolution seeking authority to disapply pre-emption rights, 96.9 per cent had all disapplication resolutions pass without significant votes against. 1.4 per cent of companies had at least one disapplication resolution pass with significant votes against and 1.7 per cent of companies had at least one disapplication resolution fail.'
• Shareholder dissent: 'PEG is pleased to see widespread support from shareholders for the enhanced disapplication authority, although it does note that shareholder dissent is very slightly higher on capital-related resolutions than it has been in previous years. The nine companies which had disapplication resolutions receive significant votes against or fail at their AGMs had put forward a wide spectrum of disapplication requests ranging from 5 per cent to 24 per cent of their existing share capital. From speaking to market participants, PEG is confident that these votes illustrate company specific issues to do with their history of capital raising and engagement with shareholders, rather than widespread philosophical disagreement with the enhanced authority contained in the 2022 Statement of Principles. Nevertheless, PEG is aware of a small minority of investors which are voting against all resolutions seeking enhanced disapplication authority due to fundamental disagreement with the new Principles.'
• Engagement with shareholders recommended before any vote and after any usage: 'PEG continues to advocate that companies engage with their shareholders on pre-emption rights in advance of tabling a resolution seeking pre-emption disapplication authority. Companies should also aim to provide their investors with detailed, transparent disclosure when they choose to utilise any disapplication authority.'

Enhancing transparency of shareholder disclosures

The report contains a reminder that under the 2022 Statement of Principles companies should submit a post-transaction report to PEG following a capital raising in which they have used a pre-emption disapplication authority. PEG has committed to implementing a public database of post-transaction reports over the next year to make this information more accessible.

Economic Crime and Corporate Transparency

2.  ECCTA - What is in force? What is yet to come?

We have previously reported on the Economic Crime and Corporate Transparency Act 2023 which features significant new measures aimed at improving corporate transparency and tackling economic crime (see New economic crime and corporate transparency law: Key implications for UK businesses, 10/11/23 and also AGC Update, Issue 47 (see Item 1). 

ECCTA amends various statutes, principally the Companies Act 2006, and is being implemented in stages after receiving Royal Assent on 26 October 2023. 

The Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024 were published on 1 March 2024 and brought several significant provisions of ECCTA into force on 4 March 2024, including those previously signalled by Companies House, as well as some additional changes noted below.

Key provisions of ECCTA in force from 4 March 2024

Greater powers for the Registrar. The Registrar of Companies can now remove inaccurate information on the public register, request additional information, annotate information to alert users of issues with filed information, reject a document containing inconsistent information and share information with other government departments, regulators and law enforcement agencies. The Registrar can now also impose a direct financial penalty for many offences under the Companies Act 2006 as an alternative to pursuing a criminal prosecution through the courts. 

New false statement offences. A new aggravated offence for delivering false statements to the Registrar is now effective and applies when a person knowingly delivers or causes to be delivered a document or makes a statement to the Registrar that is misleading, false or deceptive. The punishment for the aggravated offence is a fine and/or imprisonment for up to six months. A basic offence of delivering false statements applies when a person, without reasonable excuse, delivers a document or makes a statement to the Registrar that is misleading, false or deceptive. The punishment for committing the basic offence is a fine.

Greater powers to check and challenge company names. The Registrar now has stronger powers to check company names that may give a false or misleading impression to the public (for example, names suggesting a connection with a foreign government or containing computer code), together with the power for it to change any such names.

With regard to the regime related to challenging company names, it was previously possible to object to a company's registered name if it was sufficiently similar to another name in the UK and, as such, would be misleading in the UK. There is now an extra-territorial dimension enabling a person to object to a company's registered name as being misleading if it is similar to another name not only in the UK but anywhere in the world.

Requirement for a registered office address. All companies must now have an 'appropriate' registered office address where documents can be delivered and acknowledged by a person acting on their behalf. Companies can no longer use a PO Box as a registered office address. 

Requirement for a registered email address. All companies must register an email address with the Registrar when they next file their confirmation statement. The email address will not appear on the public register, and it is permissible for group companies to share the same e-mail address. New companies must supply an email address on incorporation. 

Greater protection for personal information on the register. The information that can be made unavailable for public inspection has been extended.

Requirement to confirm lawful activities. New and expanded duties to deliver certain information to the Registrar at the same time as the annual confirmation statement are now in force, including the obligation for existing companies to confirm in their confirmation statement that their intended future activities are lawful. Those forming a new company must confirm that they are forming it for a lawful purpose at incorporation. 

Improving the Register of Overseas Entities. Significant changes are now also in force that make the Register of Overseas Entities which own property in the UK more effective, including increasing transparency in relation to trusts.

Further information. The government has published updated explanatory notes and factsheets about ECCTA. Companies House has also updated its forms and guidance to reflect the provisions in force from 4 March 2024 (see Companies House: guidance for limited companies, partnerships and other company types and Companies House forms for limited liability partnerships). 

The Limited Liability Partnerships (Application of Company Law) Regulations 2024 were also published on 4 March 2024. These ensure that that relevant provisions of ECCTA applying to companies also apply to LLPs (with modifications).

Key provisions of ECCTA not yet in force

Several other significant provisions in ECCTA that we have previously reported on are currently expected to come into force later this year. 

Identity verification for directors and others. The new identity verification procedures for directors, PSCs, relevant officers of RLEs, members of LLPs and those filing documents at Companies House are not yet in force. There will be a transition period for those whose identities need verifying when relevant provisions are implemented. 

Directors' disqualification. New provisions in ECCTA permitting directors to be disqualified for persistently failing to comply with identity verification requirements and filing obligations are not yet in force. Any individual disqualified under the existing UK directors' disqualification regime will not be able to be appointed as a director without the permission of the court once the new rules take effect. An existing director will automatically cease to hold office if disqualified as a director.

Corporate directors. Companies House anticipates that the reforms which affect the regime relating to corporate directors will only come into effect once the new director identity verification systems are in place. Companies will then only be able to appoint a corporate director if all the directors of the corporate director are natural persons who have had their identity verified. Existing companies will be given 12 months in which to ensure that their corporate directors comply with the new requirements.

On 1 March 2024, the Small Business, Enterprise and Employment Act 2015 (Commencement No. 8) Regulations 2024 were published which amend existing law with effect from 4 March 2024 to give the government the power to make further regulations dealing with the circumstances in which companies will be able to appoint corporate directors.

Statutory registers. Companies will no longer need to maintain certain statutory registers at their registered office address including: the register of directors; the register of directors' residential addresses; the register of secretaries; and the PSC register. Instead, these statutory registers will be held at Companies House. Although these provisions are not yet in force, companies should begin checking that the information held in these statutory registers is accurate and up to date as they will need to send it to Companies House in due course. 

PSC register. There will be new duties for companies to collect and report information about their Persons exercising Significant Control which reflect the fact that the PSC register will be held centrally at Companies House. Although these provisions are not yet in force, companies should check that they have complied with their obligations to identify any PSCs and Relevant Legal Entities by sending notices to those concerned and ensuring that the information recorded in their PSC register is correct. 

Register of members. ECCTA requires the register of members to be maintained at the registered office with full names and a service address being recorded for each member. Companies will be required to provide information about their members to Companies House in a one-off confirmation statement after the new law takes affect.  Companies should check that the information in their register of members is in good order.

Failure to prevent fraud. The new standalone criminal offence of 'failure to prevent fraud' is yet to come into force. A 'large' organisation may be held criminally liable for failing to prevent fraud committed for its benefit by a person associated with it (for example, an employee, agent or subsidiary of the organisation) unless it has reasonable prevention procedures in place at the time the fraud was committed. A 'large' organisation is one that fulfils two or more of the following conditions in a financial year: more than 250 employees; £36 million in sales; or £18 million in assets. 

The fraud offences cover existing common law and statutory fraud, in addition to offences related to false accounting. An organisation found to be liable can be subject to an unlimited fine. 

Organisations should assess the risk of, and their response to, each fraud offence, according to the specific profile and activities of their business to ensure compliance, while minimising the overall burden imposed by the new offence.

Extension of the identification doctrine. The other major economic crime provision in ECCTA concerning corporate criminal liability has been in force since 26 December 2023. Companies, LLPs and partnerships of all sizes can be prosecuted if a 'senior manager' acting within the scope of their actual or apparent authority commits a specified economic crime. A 'senior manager' is anyone who plays a significant role in the decisions or the management of the business. The specified economic crimes are wide-ranging and include fraud, false accounting, money laundering, sanctions evasion, bribery, and tax evasion. 

Other future changes. The financial reporting provisions in ECCTA reforming how certain companies report information and what information they report when filing their annual accounts are yet to come into force. Similarly, further detail is expected concerning the wide-ranging changes to partnership law in Part 2 of the Act which have yet to come into force, including the reforms aimed at increasing transparency of limited partnerships and preventing their use by criminals for fraudulent purposes.

We will issue further updates as all these changes are implemented throughout the rest of this year.

Diversity

3.  FTSE Women Leaders Review publishes 2024 report 

The FTSE Women Leaders Review has published a report on gender balance in FTSE leadership.

The report states that as at 11 January 2024:

• The representation of women on FTSE 350 boards has increased beyond the 40 per cent target. The number of women in the SID role increased again this year and now stands at 47 per cent. The number of women in the Chair role was slightly down on last year.
• The number of women on FTSE 100 Executive Committees (including their Direct Reports) increased to 35.2 per cent (2023: 34.3 per cent). In the FTSE 250, equivalent female representation increased to 33.9 per cent (2023: 32.8 per cent).
• The representation of women on FTSE 100 Executive Committees has reached 30 per cent for the first time. The number of All-Male Executive Committees in the FTSE 350 has reduced to nine, down from 54 in 2017.
• Progress for women in the CEO role across the FTSE 350 has remained flat, with marginal gains offset by losses elsewhere. FTSE 100 Finance Directors and the Chief Information Officer roles had more women in them than previously.
• The FTSE 350 again had no all-male boards.

For a second year, the review included 50 of the largest private companies in the UK, of which 4 did not submit data. It found that the representation of women on those boards was around 31 per cent; and there were 18 boards that were either all-male or had only one woman. Nearly one-third had 40 per cent of women on boards, but more than half were below 33 per cent. 

By way of reminder, the FTSE Women Leaders targets for FTSE 350 companies are:

• 40 per cent of women on their board by the end of 2025.
• At least one woman as chair or SID and/or one woman as CEO or finance director by 2025.

These targets have also been extended to the largest 50 private companies in the UK by sales.

4. Parker Review publishes update report

The Parker Review has published its 2024 update report, entitled 'Improving the Ethnic Diversity of UK Business'.

Two years have passed since the target deadline for FTSE 100 companies to have at least one ethnic minority director on their board. In 2021, 89 per cent met this target. In 2023 and 2024, 96 per cent did so. The Report notes that all 100 companies in the index reported their data to the Review in each of the last three years. Ethnic minority directors hold 19 per cent of all director positions, a marginal increase from last year. There are now 12 ethnic minority CEOs in the FTSE 100, an increase from seven in 2022; there are also seven Chairs, an increase from six in 2022.

FTSE 250 companies are expected by the Review to reach the same target by December 2024. Currently 70 per cent do so, an increase of 10 per cent since the last report. Ethnic minorities now hold 13.5 per cent (2022: 11 per cent) of all director positions in the 222 FTSE 250 companies which provided data. The number of ethnic minority Chairs in these companies has increased from five to eight, while the number of ethnic minority CEOs is unchanged at 14.

By way of reminder, the scope of the Review was extended twelve months ago as follows:

• to ask listed companies to provide information about the percentage of their senior management who were from ethnic minorities, and to ask them to set their own targets for what this percentage should be at the end of 2027; and
• to ask 50 of the largest private companies to provide data to the Review; to have at least one ethnic minority director on their board; and to set a target for the share of ethnic minority executives in senior management at the end of 2027.

Based on the data of those listed companies which responded, 13 per cent of the senior management of FTSE 100 companies is comprised of ethnic minorities, compared with 12 per cent in the FTSE 250. Looking forward, FTSE 100 companies are targeting 17 per cent of their senior management to be drawn from an ethnic background by 2027, compared with 15.5 per cent in the FTSE 250. The Review states that these targets are in the range it expected and, encouragingly, correlate with the 2021 census data, albeit that the range of targets set varied between 5 per cent and 45 per cent for a number of reasons including the global nature of a particular business and location of it within the UK. 

Of the 50 private companies invited to participate in the Review, 36 provided their board data. Of the companies that responded, 22 (61 per cent) reported having at least one ethnic minority director on their board, therefore meeting the target expected of them by December 2027. 

The Report, in keeping with previous publications, includes toolkits and insights to help companies in relation to ethnic diversity: this year the Report contains perspectives from various stakeholders, including CEOs, academics, consultants and recruiters actively involved in enhancing ethnic diversity in UK business. It also contains helpful insights on how to collect diversity data which can be a sensitive exercise, particularly in some jurisdictions. 

Corporate Governance

5.  FRC amends guidance to the UK Corporate Governance Code 2024 

Following the publication of the revised 2024 UK Corporate Governance Code earlier this year (for our overview, click here), the FRC has updated the accompanying guidance with the aim of turning it into a live document containing links to relevant publications, improving the user experience and allowing it to be reviewed on a regular basis to ensure it remains accurate and up-to-date.

The FRC has stated that it does not expect to make frequent changes to the guidance. Nevertheless, with effect from 6 March 2024, any future updates will be made on the first Wednesday of each month. For those wishing to understand the changes made in more detail, these will be explained in the 'Updates Log', a link to which can be found at the foot of the UK Corporate Governance Code Guidance page on the FRC website.

Recent changes to the Guidance include the addition of a further paragraph (para 64) which sets out the matters which companies might consider reporting on as regards payment terms to evidence how they foster relationships with suppliers. Further changes have been made to the guidance relating to Section 4 on Audit, Risk and Internal Control including changing references to ‘risk management and internal control systems’ to ‘risk management and internal control frameworks’ throughout, while also clarifying the wording in paragraphs 243, 274, 297, 298 and 300.

Modern Slavery Act

6.  Modern Slavery Act 2015: call for evidence 

The House of Lords Select Committee on the Modern Slavery Act 2015 has published a call for evidence for its inquiry into the impact and effectiveness of the Act. The inquiry will also consider how the Act's provisions have been implemented, how it has been impacted by recent political developments and whether the Act is in need of improvement.

The Committee is requesting written submissions on various matters including, among others, whether the Act has kept up to date with developments in modern slavery and human trafficking, the efficacy of provisions of the Act relating to supply chains and other key provisions including definitions, sanctions, reporting, enforcement and the statutory defence for victims.

The Committee is also seeking submissions on the role of the Independent Anti-Slavery Commissioner and suggestions for improvements to help the Act to better achieve its aims.

Submissions are requested by 10.00am on 27 March 2024. The Committee will report by 30 November 2024.

Equity Capital Markets

7. Listing regime reform – Second tranche of new UKLRs published 

Overview

The FCA has published the second tranche of the draft Listing Rules (UKLRs) relating to its revision of the UK listing regime. By way of reminder, in December 2023, the FCA published CP 23/31 which set out the FCA's detailed proposals for far-reaching reforms of the UK's listing regime, including a new single commercial companies category for equity shares to replace the current premium and standard listing segments – see AGC Update, Issue 46. 

CP 23/31 included tranche 1 of the new UKLR – focusing on the requirements for the new commercial companies category - and explained that tranche 2 would follow later in Q1 2024. Helpfully, the updated draft instrument contains tranche 2 alongside tranche 1 to form a consolidated draft instrument for the new UKLRs, superseding the tranche 1 rules appended to CP 23/31.

Proposed consequential changes to other FCA Handbook sourcebooks have also been published in a separate instrument.

Key updates

Key new material includes the following:

• Transitional provisions - including in respect of in-flight listing applications and mid-flight transactions by 'former' premium listed issuers (i.e. transactions that have not yet completed at the point the UKLRs come into force).
• Listing Principles – one set of Listing Principles applicable to all listed companies, thereby collapsing the current Listing Principles and Premium Listing Principles. Current Premium Listing Principles 3 (equity shares to carry equal voting rights) and 4 (proportionality of voting rights between classes of shares) are reframed as rules applicable only to the commercial companies category. Additional guidance has been added to Listing Principle 1 (establish and maintain systems and procedures) and Listing Principle 2 (deal with the FCA in an open and cooperative manner).
• Other listing categories - the remaining proposed UKLRs for listing categories other than the commercial companies category, including the closed-ended investment funds category, the shell companies category, the international secondary listing category and the transition category (which aims to maintain the status quo for commercial companies that have an existing standard listing of equity shares that is a primary listing).
  
  Companies in the transition category will have to comply with, among other things, DTR 4 (Periodic Financial Reporting), DTR 5 (Vote holder and Issuer Notification Rules), DTR 6 (Access to Information), DTR 7.2 (Corporate governance) and DTR 7.3 (Related party transactions). In addition, they will also have to include in their annual report and accounts climate-related financial disclosures and statements on board diversity.
• Other provisions applicable to all listed securities - these include rules relating to dealing with the FCA and publishing information, the process for admission to listing, together with rules relating to suspension, cancellation, restoration and transfer between listing categories.

The FCA is also in the process of reviewing and updating Technical and Procedural Notes and expects to consult on these in two Primary Market Bulletins during April and June.

Next steps

Whilst the closing date of 22 March for submissions on the suite of policy positions and tranche 1 draft rules included in CP 23/31 remains the same, the FCA will accept consultation submissions for the additional tranche 2 draft instrument material and the consequential changes instrument until 2 April 2024.

8. HMT consults on Private Intermittent Securities and Capital Exchange System

In keeping with the theme of other reforms, HMT has published its Private Intermittent Securities and Capital Exchange System Consultation. The consultation sets out the government’s proposal for a new platform that will allow private companies to trade their securities in a controlled environment and on an intermittent basis and seeks to support the pipeline for future IPOs in the UK. The consultation closes on 17 April 2024.

9. Finance Act 2024 confirms removal of 1.5 per cent stamp duty / SDRT charge on securities issues and transfers 

In AGC Update, Issue 45 (see Item 7) we reported the government's confirmation that it would remove from UK legislation the 1.5 per cent stamp duty and stamp duty reserve tax charge on issues and transfers integral to capital raising. 

To that end the Finance Act 2024 has been published having received Royal Assent on 22 February 2024. The relevant provisions on this issue (clause 20 and Schedule 11) have effect from 1 January 2024.

ESG and climate-related reporting

10.  SEC adopts scaled-back rules on climate-related disclosures

On 7 March, the U.S. Securities & Exchange Commission (SEC) adopted rules requiring climate-related disclosures by public companies and issuers in public offerings. Modelled on the Taskforce on Climate-related Financial Disclosures recommendations, the SEC's rules aim to provide investors with consistent, comparable, and decision-useful information on the financial effects of climate-related risks (CRRs) on in-scope companies and the management of those risks. 

Application

The new rules apply to registrants (that is, those required to file documents with the SEC in compliance with the disclosure requirements under the Securities Act or the reporting requirements under the Exchange Act) and the precise disclosures required depend on the class of filer. Foreign private issuers (FPIs) will be subject to the same disclosure requirements as domestic issuers. For simplicity, this briefing refers collectively to 'in-scope companies'. 

Requirements

The disclosures required for an in-scope company’s SEC filings, such as annual reports and registration statements, include:

• CRRs that have had, or are likely to have, a material impact on the company's strategy, results of operations, or financial condition.
• The actual or likely material impacts of CRRs on the company's strategy, business model or outlook.
• Mitigation or adaptation activities to address material CRRs as well as a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that result. The activities might include use of transition plans, scenario analysis or internal carbon prices.
• The company's governance of CRRs and relevant risk management processes, including how these are integrated into the company's overall risk management systems.
• Information about climate-related targets and goals that have materially affected, or are likely to materially affect, the company's business or financial condition including material expenditures and material impacts on financial estimates and assumptions that directly result from the target or goals.
• Material scope 1 and 2 greenhouse gas (GHG) emissions for certain companies (large accelerated filers (LAFs) and accelerated filers that are not otherwise exempted) as well as an assurance report at the 'limited assurance' level. After a transition period, LAFs assurance reports would be at the 'reasonable assurance' level.
• Capitalised costs, expenditures expensed, charges, and losses resulting from severe weather events and other natural conditions, subject to applicable 1 per cent and de minimis disclosure thresholds, would need to be disclosed in a note to the financial statements.
• Capitalised costs, expenditures expensed, and losses relating to carbon offsets and renewable energy credits or certificates (RECs) if these are a material part of a company’s plans, must also be disclosed in a note to the financial statements.

What has changed since the 2022 draft?

The SEC originally proposed rules on climate disclosures in March 2022 but extended the period for consultation several times given the controversy surrounding the proposals. To address the 24,000+ comments that it received, the SEC has made significant changes to the rules including: 

• Removing the requirement for companies to report on Scope 3 emissions in their supply chain, which would have applied to companies that are not classified as smaller reporting companies. This contrasts with the Californian climate legislation made in October 2023, which will require in-scope entities to report on Scope 3 emissions beginning in 2027.
• Diluting the mandatory requirement to report Scope 1-2 emissions so that only LAFs and accelerated filers that are not otherwise exempted need to report on the Scope 1-2 emissions that they consider to be material.
• Removing the requirement to disclosure Financial Impact Metrics in a note to the financial statements. The proposal would have required disclosure of the impacts of severe weather events and other natural conditions and any efforts to reduce GHG emissions or otherwise mitigate exposure to transition risks where the absolute value of the impacts on the line items in financial statements was 1 per cent or more of the total line item for the relevant fiscal year.
• Reducing the proposed requirements to disclose Expenditure Metrics and Financial Estimates and Assumptions associated with severe weather events and other natural conditions.
• Creating a safe harbour for certain climate-related disclosures.
• Extending the timeframe for Scope 1-2 disclosures so that they will now be required in the second quarter of the fiscal year following the fiscal year to which the emissions relate.
• Longer phase-in periods for when the rules start to apply.
• Reducing governance disclosures so that companies do not need to disclose the climate expertise of their boards or the specific board members responsible for climate risk oversight.

The rules have been published on the SEC's website and will take effect 60 days after being published in the US Federal Register. Compliance with the new rules will be phased-in depending on the company's filer status.

The SEC may have been influenced to hold the vote on adopting the rules earlier than many expected to avoid the possibility of the new rules being overturned under the lookback provisions in the Congressional Review Act. These allow a new Congress to annul federal agency rules finalised within 60 working days of the end of the previous Congress. Even if the jurisdiction of the Congressional Review Act is avoided, the new rules are still expected to be subject to multiple legal challenges both from opponents and proponents. The first lawsuit has already been filed by 10 Republican-controlled States on the grounds that the SEC has exceeded its statutory authority in adopting climate disclosure rules.

What do the SEC's new rules mean for businesses?

Since the SEC's 2022 proposal, several States, including California, have introduced legislation to require disclosures of GHG emissions. These could result in companies needing to comply with similar but varying climate-related disclosure standards in different States across the U.S. The SEC states in the Final Rules document that the existence of these climate disclosure requirements may reduce the compliance burden of the SEC's new rules to the extent they impose similar requirements for in-scope companies that are subject to them. However, the SEC's rules still send an important signal to companies and investors about the overall direction of travel towards greater transparency of climate-related information in U.S. corporate reporting.   

Prior to the adoption of the Rules, one of the SEC Commissioners and other commentators recommended that the SEC considers allowing the use of other climate-related disclosure standards such as those of the International Sustainability Standards Board (ISSB). The SEC's Final Rules document states that this was recommended on the grounds that in-scope companies may operate or be listed in jurisdictions that will adopt or apply the ISSB standards. However, the SEC has decided not to recognise the use of the ISSB standards at this time, not least because they have not yet been integrated into the climate-related disclosure rules of other jurisdictions. 

For global businesses, the SEC's new rules are another issue to factor into their climate-related disclosure compliance matrix. And whilst many businesses will look to comply with the most stringent standard that applies to them, they should consider the risks of providing information that exceeds the SEC's disclosure requirements, given that this could increase their liability in the event the information is the subject of enforcement action or litigation.

Authors: Will Chalk, Rob Hanley, Shan Shori, Becky Clissmann, Marianna Kennedy, Kseniia Samokhina