Essential Corporate News – Week ending May 13, 2022

Prime Minister’s Office: Queen’s Speech 2022

The Queen’s Speech was delivered on May 10, 2022 and it sets out the programme of legislation that the Government intend to pursue in the forthcoming parliamentary session.

Particular Bills with corporate implications that were announced include the following: 

Economic Crime and Corporate Transparency Bill

The accompanying background briefing notes state that the key elements of the Bill will be as follows:

• Broadening the Registrar of Companies’ powers so that they become a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the Company Register. 
• Introducing identity verification for people who manage, own and control companies and other UK registered entities. This will improve the accuracy of Companies House data, to support business decisions and law enforcement investigations. 
• Providing Companies House with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies. 
• Tackling the abuse of limited partnerships (including Scottish Limited Partnerships), by strengthening transparency requirements and enabling them to be properly wound up. 
• Creating powers to more quickly and easily seize and recover crypto assets, which are the principal medium used for ransomware. The creation of a civil forfeiture power will mitigate the risk posed by those who cannot be criminally prosecuted but use their funds to further criminality. 
• Enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.

Financial Services and Markets Bill

The accompanying background briefing notes state that the key elements of the Bill will be as follows:

• Revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK. 
• Updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness.
• Reforming the rules that regulate the UK’s capital markets to promote investment.
• Ensuring that people across the UK continue to be able to access their own cash with ease.
• Introducing additional protections for those investing or using financial products, to make it safer and support the victims of scams.

Modern Slavery Bill

The accompanying background briefing notes state that the key elements of the Bill will include the following:

•  Strengthening the requirements on businesses with a turnover of £36 million or more to publish an annual modern slavery statement to set out steps taken to prevent modern slavery in their operations and supply chains. 
• Mandating the reporting areas to be covered in modern slavery statements; requiring organisations to publish their statements on a government-run registry, extending these requirements to public bodies and introducing civil penalties for organisations that do not comply with the requirements.

Brexit Freedoms Bill

The accompanying background briefing notes state that the key elements of the Bill will be as follows:

• Creating new powers to strengthen the ability to amend, repeal or replace the large amounts of retained EU law by reducing the need to always use primary legislation to do so. 
• Removing the supremacy of retained EU law as it still applies in the UK.
• Clarifying the status of retained EU law in UK domestic law to reflect the fact that much of it became law without going through full democratic scrutiny in the UK Parliament.

Draft Audit Reform Bill

The accompanying background briefing notes state that the key elements of the Bill will be as follows:

• Establishing a new statutory regulator, the Audit, Reporting and Governance Authority (ARGA), that will protect and promote the interests of investors, other users of corporate reporting and the wider public interest. 
• Providing new measures to open up the market, including a new approach of managed shared audit in which challenger firms undertake a share of the work on large-scale audits. This will improve the quality and usefulness of audit; and boost resilience, competition, and choice in the audit market. 
• Bringing the largest private companies in scope of regulation in the definition of ‘public interest entities’, recognising the public interest in companies of this size. 
• Giving the new regulator effective powers to enforce directors’ financial reporting duties, to supervise corporate reporting, and to oversee and regulate the accountancy and actuarial professions. 
• Reforming the regulation of Insolvency Practitioners to give greater confidence to creditors and strengthening corporate governance of firms in or approaching insolvency so that ‘asset stripping’ can be more effectively tackled.

The briefing notes comment that many of the recommendations to the Government on audit and corporate reporting made by three independent reviews undertaken by Sir John Kingman, Sir Donald Brydon and the Competition and Markets Authority,  require primary legislation and will be taken forward in this Bill. They also state that the Government’s response to the consultation on its White Paper, Restoring trust in audit and corporate governance, will be published shortly.

(Prime Minister’s Office, Queen’s Speech 2022, 10.05.2022)
(Prime Minister’s Office, Queen’s Speech 2022: Background briefing notes, 10.05.2022)

LSE: Consultation on the creation of London Stock Exchange’s Voluntary Carbon Market and amendments to the Admission and Disclosure Standards – Market Notice N12/2201

On May 11, 2022 the London Stock Exchange (LSE) published a consultation document relating to the creation of a new Voluntary Carbon Market and amendments to its Admission and Disclosure Standards (Standards). This follows an announcement by the LSE at COP26 that it would be developing a market offering to support publicly traded carbon funds and an announcement in November 2021 that the LSE was  developing a new market solution to accelerate the availability of financing for projects that will support a just transition to a low-carbon economy.  The goal would be to address two major challenges: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors.

Creation of the Exchange’s Voluntary Carbon Market

Part A of the consultation document sets out proposals for the Voluntary Carbon Market.  The Voluntary Carbon Market designation aims to provide greater transparency to attract capital for Carbon Credit projects. The requirements for the designation, and the enhanced disclosure proposed in the consultation document, are designed to inform investors of specific information relating to a Fund’s carbon reduction and/or removal projects. The proposed rules for the Voluntary Carbon Market will be set out in a new Schedule 8 to the Standards and key features proposed include the following:

Eligible Funds

Initially the Voluntary Carbon Market designation will only be open to closed-ended investment funds, but the LSE will consider other asset classes in the future. The Fund must be admitted to trading on the Main Market or AIM and its portfolio management must be conducted by a person authorised by the FCA, the Jersey, Guernsey or Isle of Man regulatory bodies to manage an unauthorised Alternative Investment Fund.

Investment Policy

A Fund’s investment strategy should have a focus on investing in carbon reduction and/or removal projects that are expected to yield Carbon Credits. The Fund will be required to make investments in keeping with the low-carbon transition principles across the remainder of its portfolio and, accordingly, revenues from its other investments must be able to be mapped to the Tier 1 or Tier 2 micro sectors within FTSE Russell’s Green Revenues Classification System. So as to ensure commitment to climate change mitigation, the Fund must make investment in at least one Proposed Project (a project in which the Fund is investing with the reasonable expectation that it is, or will be, a Qualifying Project) or Qualifying Project (a project which has been independently certified and appears on the register of the relevant qualifying body) within three years of receipt of the Voluntary Carbon Market designation.

Qualifying bodies

In order for the Voluntary Carbon Market designation to provide transparency regarding the quality of the Carbon Credits, it is proposed that the Proposed Projects or Qualifying Projects are registered with one of the following recognised bodies: The International Carbon Reduction & Offset Alliance (ICROA), which includes the UK Woodland Carbon Code, Gold Standard, Verra’s Verified Carbon Standard and others; or the Integrity Council for the Voluntary Carbon Market (ICVCM) (once its Core Carbon Principles are issued).

Delivery of Carbon Credits

The Fund will have full autonomy in determining how it proposes to deliver or retire Carbon Credits and will be required to disclose this to shareholders. Options available to Funds include delivery as a dividend in specie or a Fund may elect to retire Carbon Credits on behalf of shareholders and maintain a Registry. The Fund will also need to consider the management of fractional entitlements.

Additional disclosures

The FCA’s Prospectus Rules and the AIM Rules for Companies specify the content of a prospectus and AIM admission documents, respectively. However, in addition to the Fund’s existing disclosure requirements, to aide transparency, it is proposed that content that is specific to the Voluntary Carbon Market will additionally required to be included in the Fund’s Prospectus, AIM admission document or Designation Circular (where a Fund is applying for the Voluntary Carbon Market designation after admission, it must issue a Designation Circular to shareholders), as the case may be.

Additional continuing obligations

While Funds with the Voluntary Carbon Market designation will continue to have to comply with the ongoing disclosure requirements as set out in the DTRs, the Listing Rules, the AIM Rules for Companies and the UK Market Abuse Regulation, as relevant, it is proposed that the Fund will also be required to provide ongoing disclosure which is specific to the Voluntary Carbon Market designation. In particular, it is proposed that disclosure will be required in the Fund’s audited annual report and financial statements on matters relevant to achieving Carbon Credits, such as updates on key project milestones and the target yield of Carbon Credits and the general status of investments into Qualifying Projects and Proposed Projects.

Refusal, removal or conditions

The LSE will have powers to refuse or delay provision of, impose conditions to, or remove the Voluntary Carbon Market designation.

Other amendments to the Standards

Part B of the consultation document sets out other proposed amendments tio the Standards. For example, the early notification process is being expanded to cover all new securities, not just equity and depositary receipt securities. In addition, the early notification date for certain issuers is being increased to 30 business days, and for debt issuers, five business days, prior to admission. Overarching confidentiality, refusal powers and jurisdiction provisions are being included, as well as certain  administrative and corrective changes.

Next steps

The proposed amendments to the Standards, covering the amendments set out in Parts A and B of the consultation document, are set out in track changes in an attachment to the consultation document.

Comments are invited by close of business on July 11,  2022. The LSE expects to confirm the final rules on or around the end of September 2022. 

(LSE, Consultation on the creation of London Stock Exchange’s Voluntary Carbon Market and amendments to the Admission and Disclosure Standards – Market Notice N12/22, 11.05.2022)

(LSE, Attachment 1 to Stock Exchange Notice N12/22, Marked up LSE Admission and Disclosure Standards, 11.05.2022)

Transition Plan Taskforce: A Sector-Neutral Framework for private sector transition plans - Call for Evidence

The Transition Plan Taskforce (TPT) was launched in April 2022 by HM Treasury with a two year mandate to develop a gold standard for transition plans so as to help drive decarbonisation by providing a framework and benchmark that helps financial institutions and companies to prepare rigorous transition plans. These plans will specify how entities can support the UK’s net zero transition, through disclosures on how they will achieve pledged targets and support economy-wide decarbonisation. As part of this, on May 11, 2022 the TPT published a Call for Evidence which sets out the overall direction of travel of the TPT in preparing a Sector-Neutral Framework to enable companies across all sectors to develop standardised and meaningful plans to support the transition of the economy to net zero, and asking for stakeholder input to inform the TPT’s future work on this. 

As well as developing a Sector-Neutral Framework, the TPT will develop Sectoral Templates and accompanying guidance for private sector transition plans. 

Background

The Government published its Greening Finance Roadmap in October 2021, committing to take action to help align UK financial flows with a net zero carbon economy. Part of this strategy involves the development of new Sustainability Disclosure Requirements (SDR), which will introduce requirements for disclosures on sustainability across the economy. Under new requirements in the Listing Rules introduced by the Financial Conduct Authority (FCA) from the start of 2022, listed companies and large regulated asset owners and asset managers must disclose climate transition plans as part of their Task Force on Climate-Related Financial Disclosures (TCFD)-aligned climate disclosures, on a comply or explain basis. 

At COP26, the Government confirmed that, as part of the new SDR rules, further steps would be taken to require the disclosure of climate transition plans. Since there is currently no commonly agreed definition or common standard for transition plan disclosures, in November 2021, the Government announced that it would establish the TPT to develop a gold standard for transition plans. The FCA will be actively involved and draw on the TPT’s work to strengthen transition plan disclosure rules for listed companies and financial institutions. 

Objectives of Sector-Neutral Framework

The Sector-Neutral Framework will be directed at companies in the UK across all sectors. It will address how companies should disclose information on their strategies and action plans for meeting declared commitments and accelerating the transition to a net zero and resilient economy.

The Sector-Neutral Framework will lay out:

• the definition of a transition plan; 
• principles that should guide prepares of transition plans and provide a reference point for users seeking to understand the credibility of disclosed plans; 
• key elements that any private sector transition plan should cover, regardless of the sector of the preparing organisation; and
• accompanying guidance on the role of governance and assurance, third-party verification, and the implications of organisational transition plans for reporting.

Views are sought on  the location of transition plan disclosures. For example, they could be  integrated into existing annual financial disclosures, form part of standalone sustainability reports, be disclosed as a standalone strategy document or be disclosed in full as a standalone strategy document, but with high-level elements also appearing as part of the strategy disclosure in the annual financial report. 

Views are also sought on issues such as how prescriptive the Sector-Neutral Framework should be, recognising the need to balance flexibility in how firms disclose transition plans with more prescriptive templates that seek to facilitate comparability of firms’ transition plans, and whether the TPT should seek to standardise the data and metrics used to communicate ambition and measure progress in transition plans. 

Principles to be applied

The TPT seeks views on three guiding principles which will guide preparers to disclose relevant information in a plan, as well as provide a reference point for users seeking to understand the credibility of plans, as follows:

• Align with an economy-wide net zero transition - Targets, expected emissions trajectories and plans should be compatible with meeting a particular global temperature target by a particular time, ideally a 1.5 °C low or no-overshoot scenario by 2050. The plan should cover the whole organisation and any exclusions must not be material to the company and/or to the natural environment.
• Focus on concrete actions which emphasise the near-term and are backed up by clear governance mechanisms - The plan should set out actions to be taken in the next three to five years and interim milestones that can be used to assess progress and explain how these actions are in line with the transition to a net zero economy. The plan should be integrated into, and coherent with, the overall business and investment strategy and backed up by clear governance processes.
• Enable periodic reporting and verification in a transparent manner - Verification should be enabled in respect of annual reports on progress through adoption of quantifiable and time-bound key performance indicators, with a defined stakeholder feedback mechanism.

Elements

In the Sector-Neutral Framework, the TPT plans to create guidance on the key elements that any private sector transition plan should cover, regardless of the sector of the preparing organisation. Table 2 in the Call for Evidence summarises common elements found in existing frameworks and plans and the TPT seeks feedback on the proposed list which distinguishes between elements and sub-elements. Elements are considered to be the core building blocks of transition plans, with sub-elements being those which add credibility and granularity to each element. 

Next steps

Responses to the Call for Evidence are requested by July 13, 2022. The TPT will then develop the Sector-Neutral Framework throughout 2022. It is intended that a draft will be published for consultation towards the end of the year with a view to finalisation in early 2023.

(TPT, A Sector-Neutral Framework for private sector transition plans Call for Evidence, 11.05.2022)

BEIS: Update to Green Finance Strategy – Call for Evidence

On May 11, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published a Call for Evidence to support its update of the Green Finance Strategy it published in July 2019. 

The 2019 Green Finance Strategy had three objectives: 

• Greening finance by supporting the financial services sector to align with the UK’s net zero commitment, the need to adapt to climate change and the UK’s commitment to nature’s recovery. 
• Financing green by mobilising private investment at scale to support clean and resilient growth.
• Supporting financial services to capture the opportunity presented by the transition to a net zero and nature-positive economy, cementing UK leadership in green finance and ensuring that businesses can benefit.

Since it was published, a number of steps have been taken to achieve these objectives, including the UK becoming the first G20 country to mandate Taskforce on Climate-Related Financial Disclosures (TCFD) across the economy, and setting out a roadmap for broader economy-wide Sustainable Disclosure Requirements. The updated Green Finance Strategy will take stock of progress so far and set out how the UK can better ensure the financial services industry is supporting the UK’s energy security, climate and environmental objectives.

The questions in the Call for Evidence are concerned with four key objectives: 

• capturing the opportunity of green finance;
• mobilising finance for the UK’s energy security, climate and environmental objectives;
• greening the financial system; and
• leading internationally.

Responses to the Call for Evidence are requested by June 22, 2022 and the update to the Green Finance Strategy is planned for publication in late 2022.

(BEIS, Update to Green Finance Strategy – Call for Evidence, 11.05.2022)