Climate Related Disclosures

The Financial Conduct Authority (“FCA”) published its Primary Market Bulletin 36 yesterday.

It introduces specific Task Force on Climate-related Financial Disclosures (TCFD) aligned climate-related disclosure requirements for listed companies and sets out the FCA’s disclosure expectations and supervisory strategy. Transparency remains key to the FCA’s ESG Strategy which was released at COP26.

The listing rule for premium listed commercial companies is set out in LR 9.8.6R(8) and came into force for financial years beginning on or after 1 January 2021. The first annual financial reports including disclosures subject to this rule will therefore be published from January 2022. As these disclosures are deemed to be an ‘accounting requirement’, the Financial Reporting Council (“FRC”) is responsible for keeping these disclosures under review. From 2022, the review of TCFD-aligned disclosures will be embedded into the FRC’s routine reviews of premium listed company annual financial reports.

Issuers with standard listed equity shares should note that the FCA intends to introduce a similar rule for them to apply for financial years beginning on or after 1 January 2022, with the first annual financial reports including such disclosure published from January 2023.

The FCA regards the implementation of TCFD-aligned disclosures as a first step in their journey to implement an international sustainability standard(s) that covers more than just climate change.  At COP26 the International Financial Reporting Standards Foundation announced it is due to develop a baseline common International Sustainability Standards Board (“ISSB”) to sit alongside the International Accounting Standards Board. The FCA welcomes this significant development and is working with the Department for Business, Energy and Industrial Strategy (BEIS) to endorse and implement the future ISSB ‘climate first’ standard in the UK.

Interestingly, BEIS is also intending to introduce similar climate-related disclosure requirements into the Companies Act 2006 so we can anticipate some overlap in the future between the Listing Rules and the Companies Act.

London Readies for SPACs

The Financial Conduct Authority has published its final changes to the Listing Rules in order to encourage SPACs (special purpose acquisition companies) to list on the London Stock Exchange. The new rules will come into force on 10 August 2021.

The FCA consulted previously on the listing of SPACs, noting the need to balance investor protection with the desire to encourage SPACs to list on the Main Market.

A SPAC (or blank cheque company) is a shell company which raises cash through an initial public offering of its shares and lists, with the aim of using the funds raised to buy one or more companies later on. Prior to the new rules coming into force, there was a presumption that the FCA would suspend the listing of a SPAC when the SPAC identified a potential acquisition target. This was to protect investors
from disorderly markets due to there being insufficient information available to the public at
that stage. However, investors saw the suspension as detrimental as they could not then sell their shares, possibly for months.

Stock MarketThe FCA has now resolved the issue by removing the presumption of suspension provided the SPAC meets the following criteria:

  • raise at least £100 million from public shareholders at listing.
  • find a target company and complete the acquisition within two years, extendable to three years with shareholder approval. The period can be extended for a further 6 months without shareholder approval in certain circumstances to complete a well-advanced acquisition.
  • ring-fence funds raised from the public so that they are preserved either to fund an acquisition or be returned to shareholders, less any specifically agreed SPAC running costs.
  • obtain shareholder approval for any proposed acquisition, based on sufficient disclosure of key terms and a fair and reasonable statement where any conflict of interest arises between any of the SPAC directors and the target company.
  • provide a redemption option, allowing investors to exit a SPAC before any acquisition is completed.
  • disclose sufficient information to investors on key terms and risks at various stages in the SPAC’s lifecycle.

The FCA is further supporting SPACs by agreeing to provide more comfort at the point of listing that the presumption of suspension will not apply. Previously, the FCA had said that it would not confirm whether a SPAC would avoid suspension until it had identified its target. This will afford SPACs which meet the criteria greater confidence that their shares will remain listed and provide market fluidity to investors.

The opinions expressed are those of the author and do not necessarily reflect the views of the Firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

Financial Services Act 2021: Changes Ahead


The Financial Services Act 2021 has been published, making it the first financial services primary legislation passed by the UK Parliament since the UK left the European single market.

There are some important future changes that issuers need to be aware of.

  • Issuers’ responsibility for notifying the market of transactions by PDMRs and persons closely associated with them

UK MAR requires persons discharging managerial responsibilities (PDMRs, being essentially senior managers) and those persons closely associated with them to notify both the issuer and the Financial Conduct Authority of their transactions in the issuer’s instruments. Currently, this notification must be made by the PDMR and their closely associated persons to the issuer within three business days of the transaction. The issuer must in turn notify the market within three business days of the transaction. This can be a difficult timeline to meet so the Act will require issuers to notify the market within two working days (“working days” will explicitly exclude England and Wales bank holidays) of receiving the notification from the PDMR and persons closely associated with them. This change is due to come into force on 29 June 2021.

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Restoring Trust in Audit and Corporate Governance: Consultation

Directors’ reporting and the statutory audit have taken a battering in light of recent corporate catastrophes such as Thomas Cook Group plc, Carillion plc and BHS. In response, the government commissioned three independent reviews in 2018: Sir John Kingman’s Independent Review of the Financial Reporting Council (FRC), the Competition and Market Authority (CMA)’s Statutory Audit Services Market Study and Sir Donald Brydon’s Independent Review of the Quality and Effectiveness of Audit.

  • The FRC Review recommended that the current regulator, the FRC, be replaced.
  • The Brydon Review concluded that statutory audit needs to become more informative and helpful to users.
  • The CMA Market Study called for new measures to increase quality, competition and resilience in audits.

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The Investment Association – Shareholder Priorities for 2021

On 18 January 2021, the Investment Association (“IA”) published its shareholder priorities for listed companies in 2021.  The publication:

  1. Assesses the progress made by listed companies on the four areas identified by investors as critical drivers of long-term value at the time of publication of the shareholder priorities for 2020;
  2. Sets outs IA member expectations for 2021; and
  3. Describes the approach which its corporate governance research service, the Institutional Voting Information Service (“IVIS”), will take to analyse these issues for companies with year-ends on or after 31 December 2020. This includes a summary of the IVIS questions and colour top approach for 2021.

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Limit on Corporate Directors: Consultation Opens

Business meeting

The Department for Business, Energy and Industrial Strategy has opened a consultation on the Government’s proposed approach to restricting the use of corporate directors as part of its larger package to enhance corporate transparency, reform Companies House and fight economic crime in the UK.

On the one hand, corporate directors may be seen to weaken corporate governance by preventing individual accountability yet on the other, they may be a useful and legitimate option.

The law as it stands requires that only one director on a company’s board be a “natural” person and any number may be corporate directors. Provision to prohibit the use of corporate directors was made in the Small Business, Enterprise and Employment Act 2015 but this has yet to come into force. Accordingly, the consultation is looking at what exceptions to the prohibition on corporate directors should be introduced so as to achieve an effective balance between their legitimate and “smoke-screen” use.

  • The Government intends to introduce regulations that create a “principles” based exception to the prohibition. The principle is essentially that a company can be appointed as a director if:
    all of its directors are, in turn, natural persons; and
  • those natural person directors are, prior to the corporate director appointment, subject to the Companies House identity verification process.

Responses are due by 03 February 2021.

The Investment Association Publishes Views on 2021 Executive Remuneration

chart and money

On 16 November 2020, the Investment Association (“IA”) published amendments to its principles of remuneration for 2021 and updated its guidance on COVID-19 and executive pay.

IA Principles

The covering letter to chairs of remuneration committees of FTSE 350 companies highlights the main (minor) changes to the IA principles which essentially seek to clarify investor expectations on the following issues:

  • The use of non-financial performance measures, in particular environmental, social and governance (“ESG”) related measures – on trend with companies increasingly incorporating material ESG risks into their incentive plans, companies will need to ensure ESG performance conditions are clearly linked to the company’s strategy. However, the IA’s view remains that financial targets should comprise the majority of any annual bonus.

  • Deferral of bonuses – where a bonus opportunity is more than 100% of salary, a proportion should always be deferred into shares, not given as cash.

  • Post-employment shareholding requirements – companies should explain what mechanisms are in place to enforce shareholding policies once a director has left the company.

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The Future of Annual Reporting?

The FRC have published a discussion paper in which they question whether the traditional concept of the annual report remains fit for purpose. Arguably, annual reports are too long, impenetrable and fragmented. In looking at the future of corporate reporting, the challenge is how to balance the need for more concise reporting against demands for more transparency.

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Stewardship Code 2020: Early Reporting

The Financial Reporting Council’s ambitious UK Stewardship Code 2020, effective 1 January 2020, required a new mandatory annual Stewardship Report to be published. This is challenging for investors as it requires reporting on stewardship activities actually undertaken and the outcomes actually achieved, not just stating intent or policy.

Business meetingSome institutions have already reported early and the FRC has published a report, “Review of Early Reporting“, which scrutinises those reports and concludes that whilst there are some early good examples of reporting, more needs to be done.

Set that in the context of growing societal expectations and regulatory demands that investors be engaged stewards of the assets entrusted to their care, and that environmental, social and governance issues, including climate change, are included in their stewardship and investment decision making. It is clear that in relation to all things ESG (including remuneration) related, investors will increasingly engage more actively when challenging the companies they invest in as they will need to be able to report on specific behaviours with practical examples to evidence their compliance with the Stewardship Code.