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.