Essential Corporate News: Week ending January 7, 2022

FCA: Enhancing climate-related disclosures by standard listed issuers: PS21/23

On December 17, 2021 the Financial Conduct Authority (FCA) published Policy Statement PS21/23 confirming the extension of the application of the Listing Rule climate-related financial disclosure requirements to issuers of standard listed shares and Global Depositary Receipts (GDRs) representing equity shares (excluding standard-listed investment entities and shell companies). PS21/23 summarises the feedback to the FCA’s consultation on this (CP21/18 published in June 2021) and confirms the final rule and guidance. It also sets out the FCA’s future intended direction of travel as standards for corporate reporting on climate and sustainability matters evolve.

Extension of climate-related financial disclosures

The FCA is extending the application of its existing climate-related disclosure requirements, on a comply or explain compliance basis, to issuers of standard listed shares and standard listed issuers of GDRs, in each case excluding standard listed investment entities and shell companies.

The new Listing Rule, LR 14.3.27R, will apply for accounting periods beginning on or after January 1,  2022 and it is aligned with LR 9.8.6R(8), which applies to premium listed commercial companies. The new Listing Rule requires in-scope companies to include a statement in their annual financial report setting out:

• Whether they have made disclosures consistent with the Task Force on Climate related Financial Disclosures (TCFD) recommendations and recommended disclosures in their annual financial report.
• Where they have not made disclosures consistent with some, or all, of the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future, and the timeframe within which they expect to be able to make those disclosures.
• Where they have included some, or all, of their disclosures against the TCFD’s recommendations and/or recommended disclosures in a document other than their annual financial report, an explanation of why.
• Where in their annual financial report (or other relevant document) the various disclosures can be found.

Guidance for in-scope companies

The FCA is also including guidance provisions to support in-scope companies in making their disclosures, as set out in LR 14.3.28G to LR 14.3.31G. These are aligned with guidance provisions in LR 9.8.6BG – LR 9.8.6EG for premium listed commercial companies.

Following their publication in October 2021, the FCA is incorporating references to the TCFD’s new guidance on metrics, targets and transition plans and updated implementation annex in both its existing and new guidance provisions, for both premium and standard listed issuers in scope of the FCA’s rules.

The FCA has introduced an additional guidance provision related to the TCFD’s finalised guidance on transition plans. Specifically, it sets out that, where making disclosures on transition plans as part of its strategy disclosures under the TCFD’s recommendations and recommended disclosures, a listed company that is headquartered in, or operates in, a country that has made a commitment to a net zero economy (such as the UK’s commitment under the Climate Change Act 2008 (Order 2019)) is encouraged to assess the extent to which it has considered that commitment in developing and disclosing its transition plan. Where it has not done so, it is encouraged to explain why.

The FCA is also encouraging listed companies to consider the Sustainability Accounting Standards Board (SASB) metrics for their sector when making their disclosures against the TCFD’s recommendations, as appropriate.

Other developments

The FCA has updated Technical Note 801.1, which clarifies existing disclosure obligations in relation to ESG matters for a wide scope of issuers. The changes made to it are limited to reflecting the new rule and associated guidance set out in PS21/23 and implementing minor changes to certain references to EU legislation.

The FCA also reminds issuers that it has published Primary Market Bulletin 36 (PMB36), which sets out the FCA’s disclosure expectations and supervisory strategy for both its existing TCFD-aligned climate-related disclosure rules and those set out in PS21/23.

As well as publishing PS21/23, on December 17, 2021 the FCA published Policy Statement 21/24: Climate-related disclosures by asset managers, life insurers and pension providers which summarises feedback on the FCA's proposals in Consultation Paper 21/17 and confirms its final rules for certain regulated firms on climate-related disclosure requirements aligned with the TCFD Recommendations.

Next steps

The FCA points out that listed companies directly affected by the new LR should familiarise themselves with the rule and associated guidance as they will need to assess the suitability of their current arrangements to ensure they can meet the requirements of the rule.

Premium listed issuers in scope of LR 9.8.6R(8) are also encouraged to consider the implications of the new and amended guidance provisions which will apply for accounting periods beginning on or after January 1, 2022.

The FCA notes that in CP21/18, it included a discussion chapter on ESG integration in UK capital markets, focusing specifically on the sustainable debt market and the role of ESG data and rating providers. The FCA has not included feedback to the input received on that in PS21/23 and will instead publish a Feedback Statement to the discussion chapter in the first half of 2022.

(FCA: Enhancing climate-related disclosures by standard listed issuers – PS21/23, 17.12.2021)

BEIS: National Security and Investment notification service: Mandatory, voluntary and retrospective forms published

On December 17, 2021 the Department for Business, Energy and Industrial Strategy (BEIS) published various forms containing the questions to be answered when letting the Government know about an acquisition via the National Security and Investment notification service, in accordance with the National Security and Investment Act 2021 (NS&I Act).

With effect from January 4, 2021 the Government may need to be informed about acquisitions of certain entities or assets before they can be completed and this is done by submitting a notification form. The notification forms concern the following:

• mandatory notification
• voluntary notification
• retrospective validation
• notification declarations A and B.

BEIS has also published guidance on completing and registering the notification forms.

CMA: Revised guidance on the CMA’s jurisdiction and procedure relating to mergers

On January 4, 2022 the Competition and Markets Authority (CMA) published a revised version of CMA2, “Mergers: Guidance on the CMA’s jurisdiction and procedure”. This guidance provides advice and general information to companies and their advisers on the procedures used by the CMA in operating the merger control regime set out in the Enterprise Act 2002, as amended. It also includes guidance on when the CMA will have jurisdiction to review mergers under that Act.

The guidance has been revised to take account of the introduction of the national security and investment regime operated by the Department for Business, Energy and Industrial Strategy and related changes to the Enterprise Act 2002, brought about by section 58 National Security and Investment Act 2021 (NSI Act).

The previous statutory framework (and the previous version of CMA2) continues to apply in all ongoing cases (ie cases where a formal Phase 1 or Phase 2 investigation has commenced) and cases where the Secretary of State has issued a public interest intervention notice (PIIN) as well as in future cases where a trigger event (as defined under the NSI Act) occurs prior to January 4, 2022 and in relation to which the Secretary of State issues a PIIN after January 4,  2022.

The revised guidance will be applied in relation to all other mergers from January 4, 2022 onwards.

(CMA, Mergers - the CMA’s jurisdiction and procedure: CMA2, 04.01.22)

FCA: Handbook Notice No 94

On December 17, 2021 the Financial Conduct Authority published its latest Handbook Notice summarising changes to the FCA Handbook and other material made by the Financial Conduct Authority (FCA) Board under its legislative and other statutory powers on November 25 and December 16, 2021. This includes feedback on proposals set out by the FCA in CP21/27 published in September 2021 concerning amendments to the FCA’s rules on corporate reporting in machine-readable electronic format under DTR 4.

Under the FCA’s transparency rules, issuers must prepare annual financial reports in a machine-readable electronic format. These rules are set out in Disclosure Guidance and Transparency Rules (DTR) 4.1.14R and the UK Transparency Directive European Single Electronic Format (TD ESEF) Regulation. The requirements originate in EU legislation for the European single electronic reporting format (ESEF) initiative, which aims to enhance the accessibility of issuers’ financial data and make the process of evaluating corporate performance across industry sectors and different jurisdictions by investors easier.

Issues consulted on

In CP21/27, the FCA consulted on some minor changes to the TD ESEF Regulation to allow more choice to issuers who are in scope of the mandatory tagging requirements in Article 4 in terms of the taxonomy they can use to ‘tag’ their financial reports. The FCA proposed that issuers could choose between the following taxonomies for tagging their financial statements for the 2021 financial year:

• the core taxonomy currently in the FCA’s rules (being the 2019 version of the ESEF taxonomy);
• two subsequent versions of the ESEF taxonomy which are set out in EU legislation (ESEF 2020 and ESEF 2021); and
• two versions of the UKSEF taxonomy issued by the Financial Reporting Council (FRC) (from their 2021 and 2022 taxonomy suites).

The FCA also proposed that issuers could choose between the ESEF 2021 taxonomy and the UK Single Electronic Format (UKSEF) 2022 suite for the 2022 financial year, and proposed some consequential changes to the TD ESEF Regulation to allow for differences in the technical specifications and filing rules associated with the different permitted taxonomies.

Outcome of consultation

The FCA is proceeding with final changes broadly as consulted on. However, because the forthcoming ESEF 2021 taxonomy has yet to be adopted in EU law, it is deferring adding a reference to this taxonomy at this stage. It still intends to permit this new taxonomy once it is in force in the EU, subject to the FCA Board approving a further amendment to the technical standards to add this taxonomy in due course.

The FCA is making minor drafting changes to its proposed wording for Article 5(2). This follows feedback from the FRC on the organisation and structure of its 2021 and 2022 taxonomy suites, including on the location of tags for non-financial data.

As a result, all issuers, including those incorporated overseas, who use UKSEF to meet their mandatory tagging obligations under Article 4 may mark up other parts of their annual financial report using tags contained in the broader range of taxonomies issued by the FRC.

The FCA still considers it appropriate and beneficial to provide for issuers to use UKSEF as an alternative to ESEF, notwithstanding some feedback that UKSEF may require additional material to support its use. The FCA has engaged with the FRC which has since issued filing guidance. Given that companies currently have up to six months in which to publish and file financial reports following their accounting year-ends under DTR 4, the FCA considers that there remains time for companies and vendors to prepare for UKSEF.

The instrument implementing these changes takes effect on December 17, 2021.