Diversity & Inclusion Reporting for Listed Companies

The Financial Conduct Authority (FCA) has published amendments to the Listing Rules and the Disclosure Guidance and Transparency Rules which implement mandatory board and executive management-level diversity and inclusion reporting.

In-scope companies are those with equity securities listed in London, whether UK or non-UK incorporated, whether premium or standard listed (and including companies with equity GDRs listed in London), except for open-ended investment companies and shell companies.  The rules apply to closed-ended investment companies with a premium listing (subject to some possible adjustments) but not to closed-ended investment companies admitted to the Specialist Fund Segment.  The rules do not apply to AIM traded companies or those which only have listed debt or other non-equity securities.

The new rules are effective immediately and apply in respect of accounting periods starting on or after 1 April 2022 although the FCA is encouraging companies whose current financial year began on or after 1 January 2022 to consider complying with the rules on a voluntary basis.

The rules require, as an ongoing listing obligation, in-scope companies to include a statement in their annual financial report setting out whether they have met specific board diversity targets on a ‘comply or explain’ basis, as at a chosen reference date within their accounting period and, if they have not met the targets, an explanation of why they have not.

The board diversity targets are:

  • At least 40% of the board are women.
  • At least one of the senior board positions (Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer) is held by a woman.
  • At least one member of the board is from a minority ethnic background (as defined by reference to categories recommended by the Office for National Statistics, excluding those listed as coming from a White ethnic background).

Alongside the annual narrative comply or explain disclosure, companies will also be required to publish numerical data (including percentages) in a standardised tabular format (see Annex 2 of the Policy Statement) on the sex or gender identity and ethnic diversity of their board, senior board positions and executive management as at the same reference date. The decision whether to report on the basis of sex or gender identity is left to the companies themselves.

By way of exception, where a company has board members or executive management situated in countries in which local data protection laws prevent the collection and/or publication of personal data, the company is not required to report the relevant information but must instead explain why it is unable to do so.

The description of a company’s diversity policy (if any) in its corporate governance statement should now extend to the company’s remuneration, audit and nomination committees as well as to the board itself and cover diversity aspects such as ethnicity, sexual orientation, disability and socio-economic backgrounds, in addition to the existing requirement to address age, gender and educational and professional backgrounds. Companies can continue to choose not to have a diversity policy but must explain why they do not.

The FCA intends to review the rules in 3 years’ time to assess whether the targets remain appropriate, both in terms of the levels and their focus, including whether further targets on other aspects of diversity should be included.

Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022

On 19 January 2022 the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (“CFD Regulations”) were published. They will come into force on 6 April 2022 and apply in respect of any financial year of a company which commences on or after that date.

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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.

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London Readies for SPACs

Stock Market

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.

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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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Preparing for Your 2021 AGM and Reporting Season – What Should Be on the Agenda?

Many listed companies are now starting to prepare for the 2021 annual general meeting (“AGM”) season and plan their next annual report.

This note summarises what we think will be some of the key agenda items for 2021.

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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.