Essential Corporate News – Week ending February 3, 2023

Parliament: Inquiry into information sharing by the Investment Security Unit launched

On February 1, 2023 it was announced that a sub-committee of MPs who sit on the Business, Energy and Industrial Strategy (BEIS) Select Committee have launched a short inquiry into how the how the Investment Security Unit (ISU), set up under the National Security and Investment Act 2021 to monitor investments and takeovers of UK businesses that might pose risks to the UK’s national security, shares information about its work.

The BEIS Sub-Committee on National Security and Investment, established by the BEIS Select Committee to examine the work of the ISU, is calling for those with knowledge of investment screening processes in the UK or abroad, or companies with experience of investments scrutinised by the ISU, to submit evidence through the inquiry webpage before midnight on February 24, 2023 on any of the following questions;

• How, and how effectively does the ISU communicate with the firms involved in transactions? How could this improve?
• What metrics and information should be used to assess the impact and effectiveness of the investment screening systems, and over what time frame?
• What can the UK learn from the way other countries report on the work of their investment screening systems?

The inquiry will only take evidence on transactions where the ISU decision and period for any judicial review have both been completed. 

(Parliament, Inquiry into Government’s investment security watchdog opens, 01.02.2023)

BEIS: Reporting on Payment Practices and Performance Regulations 2017 – Government Consultation

On January 31, 2023 the Department for Business, Energy and Industrial Strategy (BEIS) published a Consultation Paper following a statutory review of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (Regulations). It asks whether the Regulations should be extended beyond their current expiry date of April 6, 2024 and also seeks views on other potential amendments and improvements to the Regulations. 

The Regulations introduced a duty on the UK’s large companies and LLPs (those exceeding a certain size criteria) to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after April 6, 2017. Businesses in scope of the reporting requirement must prepare and publish information about their payment practices and performance in relation to qualifying contracts, for each reporting period in the financial year. 

Proposals in Consultation Paper

Proposals on the following are set out:

• amending the current expiry date of the Regulations so as to extend them  beyond April 6, 2024 – BEIS is considering extending the Regulations for a further seven years with the view to review again after five years;
• including an additional value reporting metric so that a qualifying business is required to report the total value of payments due in the reporting period that have not been paid within agreed terms;
• requiring a reporting business to include their payment practices and performance reports in their directors’ report to provide greater transparency;
• clarification of how supply chain finance is reported (particularly around payment dates used for reporting in such cases);
• including a new metric on disputed invoices;
• requiring payment practice and performance reports to include information on the standard retention payment terms in qualifying construction contracts.

Next steps

Responses are requested by April 28, 2023. A Government response covering the policy proposals and potential amendments to the Regulations is to be published within 12 weeks of the close of the consultation.

(BEIS, Reporting on Payment Practices and Performance – Government Consultation, 31.01.2023)

FRC: ESG Statement of Intent: What’s Next

On January 30, 2023 the Financial Reporting Council (FRC) published an update to the Statement of Intent on Environmental, Social and Governance (ESG) which it first published in 2021. That identified underlying issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information.

Areas of focus in coming year

The update sets out areas where there remain ongoing challenges in ESG reporting and it suggests actions for preparers to produce decision relevant information. The update also sets out areas of focus for the FRC in the coming year, noting that the demand for ESG information continues to evolve. These areas include the following:

• The FRC will develop guidance and best practice on the distribution and consumption of ESG data, examining how ESG data is communicated to the market and how investors, regulators and other stakeholders engage with and consume ESG data to meet their needs.
• The FRC will provide a further comprehensive update to its Guidance on the Strategic Report to capture changes in requirements including new narrative reporting requirements, other changes to the existing non-financial reporting framework and, where necessary, any sustainability reporting arising from developments in the Sustainability Disclosure Requirements.
• The FRC will update its guidance on Climate-related risks for FRS 102 preparers.
• Later in 2023, the FRC will build on its thematic reviews of TCFD disclosures and climate reporting in the financial statements of UK listed companies by publishing a further thematic report focused on metrics and targets for four key industries, as part of its response to the work of the Transition Plan Taskforce (TPT), launched by HM Treasury in April 2022, to develop a common framework for developing and reporting climate transition plans.
• In 2023 the FRC will undertake a revision of the UK Corporate Governance Code, in a way that recognises the growing importance of ESG reporting and their importance to the work of company boards.
• As part of assessing applicants as signatories to the UK Stewardship Code, the FRC Stewardship team will continue to assess how investors integrate material ESG issues into their investment management activities, as part of the annual assessment programme for signatories to that Code.
• The FRC’s programme of audit quality inspections will continue to pay particular attention to the auditor’s work on climate-related risks, including the linkage between the audited financial statements and climate-related disclosures elsewhere in the Annual Report. This work will be supported by targeted thematic work including hot reviews (in-flight reviews), looking at how and to what extent these reviews consider ESG matters.
• The PIE (Public Interest Entity) Audit Registration team will consider identifying PIEs with significant environmental risk and monitoring whether the respective senior statutory auditor has completed appropriate and relevant training.

(FRC, ESG Statement of Intent: What’s Next, 30.01.2023)

BEIS: Mission Zero – Independent review of Net Zero – Final Report

On January 13, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published the Final Report of the Net Zero Review Team chaired by Chris Skidmore. The Review Team was established in 2022 to review the Government’s approach to net zero to better understand the impact of the different ways to deliver the net zero pathway on the UK public and economy and maximise economic opportunities of the transition. This follows publication, in 2021, of the Government’s Net Zero Strategy, setting out a pathway to reaching net zero greenhouse gas emissions by 2050. 

Part 1 of the Final Report sets the scene and explains the opportunity and benefits of net zero to individuals and the economy. Part 2 sets out how Government and industry should achieve this opportunity, stepping from the cross-cutting macro framework for a green industrial revolution and the specific actions needed to catalyse action in individual sectors of the economy through to how the role of local authorities, communities, and the individual to deliver a just transition can be enhanced.

Recommendations in the Final Report that will impact companies

These include the following:

• Incentivise financial disclosure – It is recommended that the Government should endorse and implement the International Sustainability Standards Board (ISSB) standards as soon as possible. These provide a comprehensive global baseline of sustainability-related disclosure standards and the Review Team believes the UK should lead by example, launching a formal adoption mechanism as soon as the ISSB standards are published and moving swiftly to assess and endorse the standards for use in the UK. The UK should aim for 2024/25 as the first sustainability reporting cycle for companies in scope, encouraging companies to apply the ISSB’s standards voluntarily in 2023/24.
• Transition Plans - The UK should continue its pioneering work in transition plan disclosures led by the UK Transition Plan Taskforce (TPT), share them internationally, and once more developed, Transition Plan Taskforce standards should be made mandatory for both listed and private firms to ensure comparable disclosure standards across the economy, in line with previous Government commitment.
• Taxonomy - To sufficient investment in transition economic activity, investors need information on transition pathways to put transition plans into context, as well as common categories and definitions on what economic activities are aligned with the transition to net zero. The Review Team recommends that the Government considers the appropriateness of a transition taxonomy (alongside a green taxonomy) that is simple and proportionate; and work with international partners to ensure the UK approach is interoperable and harmonised with others’ approaches.
• UK Stewardship Code - This sets stewardship standards for those investing money on behalf of UK savers and pensioners and promotes the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries. The Review Team believes it should be updated as part of its review at the end of 2023 to explicitly reflect the need to take sustainability and the transition into account.
• UK as centre of green finance - The Review Team recommends that the Government and the Financial Conduct Authority should review how the UK can become the most competitive financial centre for green and transition listings, capital raising and project financing. This should include reviewing the prospectus and listing regimes to encourage integrity and growth in the market for green finance instruments, as well as exploring the new opportunities arising for professional services, climate and nature data and analytics and innovative product development.