Legal development

Ashurst Governance & Compliance Update – Issue 61

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    Corporate Governance

    1. Board Priorities in 2025

    Based on what they are seeing in the market, our global governance, sustainability, and risk advisory experts have published their priorities for Boards in 2025.

    Some priorities have evolved because of challenges encountered last year, while new priorities address emerging issues and opportunities. We hope that these priorities will serve as a catalyst for meaningful discussion and debate within your organisation. 

    If you would like to discuss any of the issues raised, please contact your usual Ashurst contact, or any of those listed in each priority.

    2. FRC consults on draft three-year strategy and plan for 2025-26

    The Financial Reporting Council has published its Draft 3-Year Strategy: 2025-28 and Draft Plan and Budget 2025-26 for consultation, setting out its high-level priorities for the next three years.

    Areas of immediate focus for the FRC include:

    • working to replace the FRC with a new statutory regulator, the Audit, Reporting and Governance Authority or 'ARGA';
    • working to embed the 2024 UK Corporate Governance Code, focusing in particular on Provision 29 and internal controls and partnering with the Corporate Reporting Review team to monitor reporting;
    • ensuring that the UK Stewardship Code, once revised, supports 'high-quality investor stewardship' and growth generally;
    • supporting the government's work on the Non-Financial Reporting Review which seeks to review and potentially streamline narrative reporting in the UK;
    • revising its guidance on the strategic report;
    • with Companies House and others, working to deliver taxonomies and a regulatory approach to produce reliable and high quality digital reports; and
    • providing specialist advice to the UK Sustainability Technical Advisory Committee for the endorsement of international standards related to sustainability reporting.

    Feedback on the consultation should be submitted by 6 February 2025.

    AGMs in 2025

    3. AGMs in 2025: what to expect

    By way of reminder, earlier this month we published our overview of issues to consider when preparing for AGMs (and undertaking narrative financial reporting) this year – see 2025 AGM and reporting season: what to expect.

    4. ISS publishes final 2025 proxy voting guidelines

    Institutional Shareholder Services has published an updated and final version of its UK and Ireland proxy voting guidelines. This version is effective for meetings on or after 1 February 2025.

    The updated version of the guidelines reflects the updates announced in December 2024 and which we covered in AGC Update, Issue 60 – Item 1.

    Narrative and Financial Reporting

    5. PERG publishes 17th Annual Report and updated Walker Guidelines

    The Private Equity Reporting Group (PERG) has published its 17th report on the conformity of reporting by the largest private equity-owned UK portfolio companies with the Walker Guidelines, together with an amended version of the guidelines themselves. PERG's reporting process brings together three separate annual reports which seek to promote enhanced reporting and disclosure by portfolio companies and their owners. The three reports are:

    The three reports, which underpin the private equity industry's efforts to increase transparency and support the UK economy, are intended to be read together.

    17th PERG Annual Report

    Highlights from the reports include:

    • A record number of portfolio companies (90) were in scope of the Walker Guidelines this year.
    • 81 of the 90 companies were compliant with the Guidelines, while nine (2023: 11) did not comply with any of the Guideline's components.
    • A larger proportion of companies reviewed achieved a 'basic' overall assessment of their disclosures this year – i.e. disclosure to a standard comparable with that required of FTSE 250 companies.
    • 43 per cent of portfolio companies prepared disclosures to at least a 'good' standard, a considerable drop from 60 per cent in 2023.
    • 78 per cent of companies included a statement of compliance with the Guidelines in their annual report (2023: 60 per cent).
    • There was continued 'basic' compliance with those disclosures which are specific to the Guidelines, particularly disclosures focused on social, community and human rights issues, and gender diversity information. There was a deterioration in the standard of compliance with disclosures expected in relation to financial key performance indicators.

    PERG recommends that private equity firms spend more time familiarising themselves and their portfolio companies with the requirements of the Guidelines, including putting in place mechanisms to alert companies when they come in to scope. 

    Updated Walker Guidelines

    PERG has also published an amended version of Part V of the Walker Guidelines, following a consultation published in July 2024 and as covered in AGC Update, Issue 55 – Item 4.

    In doing so, PERG has changed the thresholds and tests that determine whether a portfolio company falls within the Guidelines. It has done so in order that the population of in-scope companies is more comparable to FTSE 250 companies in size. A new mechanism also brings into scope companies that grow significantly while allowing companies that reduce in size to fall out of scope.

    The changes to the Guidelines also include increased disclosure expectations in relation to issues such as principal risks and uncertainties, climate-related and other environmental matters and diversity, equity and inclusion. Disclosures on ownership structures and board composition are unchanged.

    PERG will first report on compliance with the updated Guidelines in its annual report published in December 2026, in relation to companies that are in-scope between 1 January and 31 December 2025.

    Economic Crime and Corporate Transparency

    6. Companies House announces ECCTA implementation dates for early 2025

    We have previously reported on the transition plan which sets out the key milestones for reforming the role of Companies House, precipitated by the Economic Crime and Corporate Transparency Act 2023 (see AGC Update Issue 57, Item 6 and AGC Update Issue 58, Item 2). 

    Companies House has announced updates to that transition plan and key ECCTA implementation dates in a Blog Post as follows:

    • Protecting residential addresses from disclosure on the public register

    From 27 January 2025, the range of circumstances in which an individual may apply to Companies House to protect their residential address have been widened and modified provisions extended to apply to LLPs. To that end, Companies House has published relevant guidance: 'Your personal information on the Companies House register' and 'Removing your home address from the Companies House register'.

    • Finding and updating company information

    From 12 February 2025, all 'Find and update company information service' users will have the option to use the GOV.UK One Login to sign in.

    • Enhanced striking-off powers

    From 25 February 2025, Companies House will be able to strike off a company more quickly if the company has been formed on false pretences.

    • Authorised Corporate Service Providers (ACSPs)

    From 25 February 2025, individuals and organisations will be able to register as an ACSP, enabling them to carry out verification services ahead of the implementation of the identity verification regime for directors, persons exercising significant control (PSCs) and others.

    • Voluntary identity verification

    From 25 March 2025, Companies House will allow individuals, including directors and PSCs, to voluntarily verify their identity.

    • Information sharing

    From 20 December 2024, Companies House has been able to share information with insolvency practitioners and other office holders engaged in insolvency or bankruptcy proceedings to, amongst other things, help maximise returns to creditors.

    These changes are brought into effect by various regulations made under ECCTA including:

    Sustainability

    7. FRC publishes review of climate-related reporting by AIM-quoted and larger private companies

    The Financial Reporting Council has published a Thematic Review of Climate-related Financial Disclosures (CFD) by AIM-quoted and large private companies required by sections 414C, 414CA and 414CB of the Companies Act 2006. 

    The CFD regime was introduced for accounting periods beginning on or after 6 April 2022 and requires companies to report on climate-related risks and opportunities (CROs) if they have over 500 employees and are (i) traded, banking, insurance or AIM-quoted companies; or (ii) private companies or LLPs with turnover exceeding £500 million. For an overview of the regime, see AGC Update, Issue 7 – Item 1.

    The Review, which follows the FRC's Annual Review of Corporate Reporting (see AGC Update, Issue 56 – Item 4), is the first to scrutinise the new CFD obligations in detail. It contains the following findings and observations:

    • Quality of disclosures: There was a range in the quality of disclosures in the 20 reports reviewed. The FRC states that this was to be expected as it was the first time that most companies had reported on CFD.
    • Resilience and Scenario Analysis: Although the FRC acknowledges that scenario analysis is a new concept for many companies, the Review notes that many companies either failed to provide any analysis of their business model and strategy considering different climate-related scenarios or their disclosures were not sufficiently company-specific.
    • Targets and KPIs: Only half of the companies in the sample set disclosed climate-related targets and progress against them using key performance indicators. For some companies it was not clear if targets were in place but not disclosed or if there were no targets to disclose.

    The Review flags inconsistencies between one company's emissions data provided in its streamlined energy and carbon reporting (SECR) and its CFD disclosures. The FRC believes that this sort of inconsistency can arise where different teams are responsible for preparing disclosures.

    Good practice examples in relation to targets specified the base year, scope and boundary of GHG emissions and the timescale for their achievement and whether GHG emission reduction targets    included global emissions from non-UK operations. Good practice also presented emissions for the group and split out those related to UK-based operations to meet the SECR requirements

    • Governance disclosures on CROs: Although governance disclosures were provided by most companies, they were often unstructured and spread throughout the annual report without specific cross-references to further relevant information contained elsewhere in the document.
    • Risk assessment and risk management: While these disclosures were generally sufficient to meet the requirements of the 2006 Act, some companies did not explain how CROs were identified. While climate-related risks were usually disclosed, opportunities were not always identified and the timeframes over which CROs were assessed were not always described.

    Good disclosures explained who was involved in identifying CROs, the process to identify them, the method to determine if they were significant (principal) to the business, how these principal risks were monitored, and whether climate risk management is integrated into a company's overall risk management process.

    • Format of disclosures: The Review found that some companies used the TCFD framework (even though this is not a requirement under the 2006 Act) but then failed to meet all the requirements in the 2006 Act. Some companies referred to climate-related information available outside of the annual report, which does not comply with the CFD requirements.
    • Good practice: Aside from specific examples of good practice in relation to the elements of disclosure described above, good practice identified by FRC included concise disclosures and disclosures using tables or diagrams.

    The findings of the Review echo those of the FRC's Annual Review of Corporate Governance Reporting for 2023 (see FRC publishes Annual Review of Corporate Governance Reporting 2023) and the FRC's July 2023 CRR Thematic review of climate-related metrics & targets (see AGC Update, Issue 39 – Item 7).

    The Review is intended to be used as a resource by preparers as they continue to develop their CFD-related reporting. To that end, the FRC has set out its expectations for future reporting including:

    • Increasing maturity: The FRC expects CFD-related disclosure to improve over time and will correspond with companies accordingly.
    • Coverage of all 2006 Act requirements: Companies should ensure that all disclosures required by the 2006 Act are included in the annual report; cross-referencing to information presented elsewhere will not amount to compliance. Similarly, groups should ensure that the annual reports of parent and subsidiary companies include appropriately tailored information that is clear about which parts of the group the disclosures relate to (which could be parts of the group more significantly affected by climate change) and how the governance and risk management arrangements for entities in the UK interact with the wider group.
    • Entity-specific analysis: Disclosures should include a detailed analysis of the resilience of the company's business model and strategy, taking into consideration different climate-related scenarios. These disclosures can be prepared on either a qualitative or quantitative basis.
    • Targets and progress: Companies should ensure that the targets used to manage climate-related risks and realise climate-related opportunities are explained, in addition to the key performance indicators that are used to measure progress against those targets. The FRC also expects companies to be clear about the extent and scope of any external assurance obtained in relation to their disclosures.
    • Clear and concise disclosures: Disclosures should be clear, concise, and specific to the reporting entity. The FRC encourages companies to use straightforward language and short sentences in their CFD and to consider using diagrams and tables to enhance the clarity of disclosures. 
      A key area where clarity and being concise will improve reports is in relation to the disclosure of principal CROs. Including minor CROs or failing to explain why CROs which have been included are significant or how they could affect the business model or strategy will not help stakeholders assess how climate is affecting the business.
    • Financial statements: Where relevant, the effects of strategies introduced to manage CROs should be made in the financial statements.

    8. EFRAG publishes voluntary EU sustainability reporting standard for small companies

    Following consultation in 2024, EFRAG (formerly the European Financial Reporting Advisory Group) has published its voluntary reporting standard for non-listed micro-, small-, and medium-sized undertakings (SMEs) (i.e. companies with up to 250 employees) as well feedback from the consultation

    The standard, known as VSME, is designed to help undertakings that are not in-scope of the Corporate Sustainability Reporting Directive (CSRD) access sustainable finance by standardising the ESG information they disclose. It is hoped VSME will replace the multiple information requests typically made of SMEs by larger companies they supply and financing business partners.

    To simplify disclosures for SMEs, the VSME replaces the concept of materiality analysis with an 'if applicable' principle, which guides disclosures to be made by SMEs by pre-defining circumstances that trigger disclosure while remaining consistent with CSRD's European Sustainability Reporting Standards (ESRS) requirements.

    VSME comprises:

    • a 'Basic Module' coving disclosures on a range of ESG topics including energy and greenhouse gas emissions, air, water and soil pollution, biodiversity, use of resources, workforce remuneration and health & safety, and bribery & corruption. 
    • a 'Comprehensive Module' that covers topics including practices and policies for transitioning towards a more sustainable economy, dealing with severe negative human rights incidents and environmental, social and governance metrics.

    The disclosures are relevant to all sectors with some additional disclosures suggested for sectors such as the fossil fuel and chemicals sectors.

    To encourage the uptake of VSME by SMEs and their business partners, EFRAG will also publish support guides and training material and will host awareness raising events and monitor emerging tools and platforms.

    The European Commission has confirmed to EFRAG that VSME remains appropriate despite statements made by the Commission President in November 2024 that the Commission would reduce EU regulatory and reporting burdens by preparing an 'Omnibus simplification package' which it is understood is likely to cover the CSRD, the Corporate Sustainability Due Diligence Directive and the EU Taxonomy Regulation. Clearly this is an issue we will track closely over the coming months.

    9. EU institutions agree to postpone application of the EUDR

    The European Parliament has confirmed the agreement reached with the European Council on the European Commission's proposal to postpone the application timeline of the EUDR (Regulation (EU) 2023/1115) by one year. This brings an end to the uncertainty that followed a vote in November 2024, when EU lawmakers voted not only in favour of the postponement of the Regulation but also moved to make substantial changes to key provisions. These changes have now been withdrawn. For more detail, see our update here.

    Equity Capital Markets 

    10.  UKLRs – new continuing obligations for listed issuers 

    For listed issuers, a number of new requirements under the UK Listing Rules (UKLRs) will apply as of 30 January 2025. This follows a six month transitional period further to the entry into force of the UKLRs and the revised Listing Regime on 29 July 2024 (for our overview of the revised regime, click here). 

    • Key persons contact details

    A legacy Listing Rule issuer (i.e. an issuer listed prior to 29 July 2024) must ensure that the FCA is provided, at all times, with up-to-date contact details of at least two of its executive directors or, if the issuer has no executive directors, at least two of its directors. Where the issuer has only one executive director or only one director, the details of this director must be provided.

    Such directors must be key persons able to assist the FCA on matters that require an urgent response.

    Relevant details to be provided include their name, business telephone number and business email address. 

    Issuers must also notify the FCA of any changes to the contact details as soon as possible.

    • Service of notices

    A legacy Listing Rule issuer must also ensure that the FCA is provided, at all times, with up-to-date contact details of a nominated person at the issuer, including such person's address (email or postal) for the purposes of receiving service of relevant documents.

    Both the above requirements apply in addition to the requirement to provide first point of contact details which has been carried over from the Listing Rules.

    The issuer contact details form can be accessed on the FCA website. Completed forms can either be emailed (listingapplications@fca.org.uk) or posted to the FCA.

    • Listing Principles 3 to 6

    In addition, for legacy standard listed issuers (i.e. issuers listed on the former standard listing segment before 29 July 2024), Listing Principles 3 to 6 (summarised below) will apply. 

    By way of reminder, a single set of six Listing Principles underpins the reformed Listing Regime, replacing the bifurcated Listing Principles and Premium Listing Principles.

    - Listing Principle 3 - taking reasonable steps to enable directors to understand their responsibilities and obligations as directors.

    - Listing Principle 4 – acting with integrity towards holders and potential holders of listed securities.

    - Listing Principle 5 – ensuring equal treatment of holders.

    - Listing Principle 6 - avoiding the creation or continuation of a false market.

    Authors: Will Chalk, Partner; Rob Hanley, Partner; Becky Clissman, Counsel, Marianna Kennedy, Senior Associate; Vanessa Marrison, Expertise Counsel, Shan Shori, Expertise Counsel.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.