UK corporate governance and narrative reporting: Key developments checklist

Introduction

This checklist is intended to help UK-listed companies keep abreast of key developments in the fast-moving areas of corporate governance and narrative reporting.

It sets out our thoughts on some of the main areas of change during the last few months, as well as a list of key developments by area, including links to more detailed summaries of those developments.

Key themes

Corporate governance and narrative reporting developments continue to emerge, as evidenced by this checklist. Many companies will have held their 2023 AGM in the period covered by the checklist and, depending on the timing of that AGM, may or may not have taken into account the various sets of updated investor guidelines. All companies within scope of those guidelines will need to consider them when preparing for the next AGM.

A key development in this period has been the publication by the FRC of the new Minimum Standard that FTSE 350 audit committees are encouraged to apply on a voluntary basis until it becomes mandatory when the Audit, Reporting and Governance Authority (ARGA) is established.  The Minimum Standard covers matters such as the audit committee’s role in the external audit tender process and oversight of the external audit. 

This development stems from the wider reforms of audit and corporate governance that ARGA will play a major part in. We now have the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023 which, once they come into effect, will  make amendments to the Companies Act 2006 imposing additional reporting requirements in a number of areas for companies with a high level of employees and turnover (defined, in summary, as those with 750 or more employees and an annual turnover of at least £750m). These new reporting requirements form part of the audit and corporate governance reforms, as does the FRC’s current consultation on revisions to the 2018 UK Corporate Governance Code. The updated Code, once finalised, is expected to apply to financial periods beginning on or after 1 January 2025. Accompanying the updated Code will be updated FRC guidance on related matters. 

Those involved with narrative reporting will be interested in the recent FRC publications around TCFD metrics and targets disclosures,  dividend-related disclosures and fair value measurements. In addition, given that the ISSB has now issued two inaugural sustainability standards and guidance (effective for annual reporting periods beginning on or after 1 January 2024), it will be interesting to see when and how they are endorsed and adopted in the UK and elsewhere. The UK government supports these standards and the FRC has published a call for evidence in relation to their endorsement in the UK.  When they were published, the FCA  announced that once they are available for use in the UK, the FCA’s intention is to update its climate-related disclosure rules to reference the ISSB standards. We will be monitoring this development.

AGMs

ICGN: Statement on post Covid AGM practices and shareholder rights (April 2023): The International Corporate Governance Network (ICGN) has published a statement cautioning against a rise in virtual-only Annual General Meetings (AGMs), arguing that they can diminish shareholder rights and board accountability.  Further details are here.

Audit Committees

FRC: Audit committee chairs’ views on, and approach to, environmental, social and corporate governance (ESG) (June 2023): The Financial Reporting Council (FRC) has published a qualitative research report looking at the views of audit committee chairs (ACCs) on, and their approach to, environmental, social and corporate governance (ESG) activities and reporting.  Further details are here.

FRC: Audit Committees and the External Audit – Minimum Standard (May 2023): The FRC has published the final version of a new Standard to be applied by the audit committees of FTSE 350 companies with a premium listing on the London Stock Exchange in relation to their responsibilities for the appointment and oversight of the external auditor and the audit, including the auditor tendering process.  Further details are here.

FRC: Conversation starters to boost investor- audit committee engagement (April 2023): The FRC has announced that it has launched a webpage aimed at promoting better engagement between investors and audit committees to facilitate better understanding of companies and their approach to financial reporting and internal control. Further details are here.

Corporate governance

CGI: Board Performance Reviews (July 2023): The Chartered Governance Institute (CGI) has published an updated Code of Practice for board reviewers in relation to board evaluations, together with two accompanying updated guidance notes, “Principles of Good Practice for listed companies using external board reviewers” and “Reporting on board performance reviews: Guidance for listed companies”. The CGI plans to publish similar principles and guidance for other entities, including non-listed companies, later in 2023. Further details are here.

FRC: UK Corporate Governance Code – Consultation (May 2023): The FRC has published a consultation paper proposing revisions to the UK Corporate Governance Code. Further details are in our briefing here.

FRC: Corporate governance and stewardship mythbuster (February 2023):  The FRC has published a short document to explain, among other things, how corporate governance and stewardship intersect. The FRC states that it is committed to promoting high standards of corporate governance and stewardship in the UK, and ensuring that these standards are properly understood and implemented by companies and investors. To help achieve this, the FRC hopes this document will provide greater clarity and understanding of these important topics. Further details are here.

QCA: The QCA Corporate Governance Code 10 years on (February 2023): The Quoted Companies Alliance (QCA) has published a report on the QCA Corporate Governance Code (QCA Code), first published in 2013, and its impact on governance on AIM. Among other things, the report looks at how the QCA Code is perceived and at how reporting against the 10 principles of the QCA Code has changed over time, looking at the first year of adoption in 2018/19, compared with 2021/22. Further details are here.

Corporate reporting

FRC: 3-Year Plan 2023-2026 (March 2023): The FRC has published its latest 3-Year Plan outlining its priorities and objectives for the period 2023-2026. Further details are here.

Diversity

Parker Review: Improving the ethnic diversity of UK business – An update report (March 2023): The Parker Review Committee has published an update report announcing progress by FTSE 350 companies in appointing ethnic minority directors to their boards. The figures announced are from a recent 2022 voluntary census on the ethnic diversity of FTSE 350 company boards, carried out by the Parker Review Committee jointly with the Department for Business and Trade. In its first report in 2017, the Parker Review made a series of recommendations and set a "One by 2021" target for all FTSE 100 boards to have at least one director from a minority ethnic background by December 2021 and a "One by 2024" target for all FTSE 250 boards.  Further details are here.

HM Treasury: Women in Finance Charter – Annual Review 2022 (March 2023): HM Treasury has published the latest Annual Review monitoring signatory progress in the past year against the Women in Finance Charter that was launched in in 2016. Signatories of the Charter must report annually to the Treasury on their progress against their self-created targets for women in senior management. Further details are here.

FTSE Women Leaders Review: Achieving Gender Balance (February 2023): The FTSE Women Leaders Review (successor to the Hampton-Alexander Review and the Davies Review) has published its latest report. This is an independent, voluntary and business-led initiative supported by the Government, aimed at increasing the representation of women on FTSE 350 boards and in their leadership teams. For the first time data from the top 50 largest private companies is included in the report. Further details are here.

ESG

FRC: CRR Thematic review of climate-related metrics and targets (July 2023): The FRC has published the results of a thematic review undertaken by its Corporate Reporting Review (CRR) team into the Task Force on Climate-Related Financial Disclosures (TCFD) metrics and targets disclosures of twenty UK premium and standard listed companies. Further details are here.

FRC Lab: Report on ESG data use and distribution (July 2023): The FRC Lab has published a new report titled “ESG Data Distribution and Consumption” which examines how investors obtain and use environmental, social and governance (ESG) data on companies. Further details are here.

FRC: Audit committee chairs’ views on, and approach to, environmental, social and corporate governance (ESG) (June 2023): The FRC has published a qualitative research report looking at the views of audit committee chairs (ACCs) on, and their approach to, environmental, social and corporate governance (ESG) activities and reporting.  Further details are here.

CGI: Tackling greenwashing from a governance perspective (May 2023): The CGI has published a report to help those working in governance and their boards to tackle greenwashing. This is described as the practice of attempting to make a product, practice, service or an entire organisation appear more sustainable or environmentally friendly than it really is.  Further details are here.

Department for Energy: Mobilising Green Investment – 2023 Green Finance Strategy (March 2023): The UK Government has published an update to its 2019 Green Finance Strategy, setting out its framework for the UK to become the world’s first Net Zero Aligned Financial Centre. Further details are here.

FRC: ESG Statement of Intent: What’s Next (January 2023): The FRC has 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. Further details are here.

BEIS: Mission Zero – Independent review of Net Zero – Final Report (January 2023): The Department for Business, Energy and Industrial Strategy (BEIS) has 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. Further details are here.

Investor guidelines/guidance

Investment Association: Effective requisitioning of shareholder resolutions – Member guidance (June 2023): The Investment Association has published a document which provides institutional investors with an overview of the key steps required to effectively file a resolution at a UK-incorporated company, where shareholders think it is an appropriate escalation mechanism. This is in response to one of the recommendations in a 2020 Asset Management Taskforce Report, ‘Investing with Purpose: Placing Stewardship at the Heart of Sustainable Growth’. Further details are here.

FRC: Pre-Emption Group Terms of Reference (April 2023): The FRC has published Terms of Reference for the Pre-Emption Group (PEG). This meets a recommendation of the Secondary Capital Raising Review which, in their July 2022 report, recommended that the PEG should be put on a more formal and transparent footing with a more formal and transparent governance structure, including terms of reference. Further details are here.

PIRC: Shareholder Voting Guidelines 2023 (March 2023): PIRC has published the latest issue of its UK Shareholder Voting Guidelines. These set out voting recommendations for its clients and PIRC applies these to listed companies (UK and overseas) and investment companies (with modifications). Further details are here.

PLSA: Stewardship and Voting Guidelines 2023 (March 2023): The Pensions and Lifetime Savings Association (PLSA) has published their updated Stewardship and Voting Guidelines. Further details are here.

Investment Association: Shareholder Priorities for 2023 (February 2023): The Investment Association (IA) has published its Shareholder Priorities for 2023, being those which its members have identified as critical drivers of long-term value for companies. It has retained the four set in 2020 (responding to climate change and accounting for climate change, diversity, audit quality and stakeholder voice) but has set out progress against each priority (based on an analysis of the 2022 AGM season), investor expectations for the 2023 AGM season, and the IVIS approach to assessing companies against these expectations in 2023. Further details are here.

Investment Association: Updated Share Capital Management Guidelines (February 2023): The Investment Association has updated its guidance on various aspects of share capital management (Share Capital Guidance), last published in July 2016. The updates, primarily to the guidelines on the expectations of Investment Association members where companies seek shareholder authorisation for the general allotment of new shares and any disapplication of pre-emption rights, result from a review following the Report of the Secondary Capital Raising Review published in July 2022. Further details are here.

Narrative reporting

Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023 (July 2023): The draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023 (Regulations) and associated explanatory memorandum have been published. These reflect the Government’s final proposals on new corporate reporting set out in its response (published in 2022) to the 2021 White Paper on restoring trust in audit and corporate governance. Further details are here. 

FRC: Call for evidence: IFRS Sustainability Disclosure Standards in the UK (July 2023): The FRC, in its role as Secretariat to the UK Sustainability Disclosure Technical Advisory Committee (TAC), has issued a call for evidence to inform the proposed UK endorsement of IFRS S1 and IFRS S2. IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) and associated guidance are the inaugural standards that were issued by the International Sustainability Standards Board (ISSB) in June 2023. Further details are here.

ISSB: Inaugural global sustainability disclosure standards (June 2023): The International Sustainability Standards Board (ISSB) has issued its inaugural standards IFRS S1 and IFRS S2 (Standards) together with associated guidance. The Standards are intended to help improve trust and confidence in company disclosures about sustainability and are designed to ensure that sustainability-related information is provided alongside financial statements in the same reporting package. The final Standards follow on from the publication of exposure drafts in March 2022.  Further details are here.

FRC Lab: Insight report – Disclosure of dividends revisited (June 2023): The FRC Lab published a report which revisits key themes from its November 2015 project report ‘Disclosure of dividends – policy and practice’. It reconsiders them with the current economic environment in mind and it highlights reporting tips and examples to help companies with their dividend-related disclosures.  Further details are here.

FRC: Thematic Review – IFRS 13 ‘Fair value measurement’ (June 2023): The FRC has  published a thematic review of ‘fair value measurement’. The FRC points out that IFRS 13 ‘Fair Value Measurement’, has featured in the Corporate Reporting Review (CRR) team’s Top Ten matters of challenge several times in the past. While the application of IFRS 13 is, based on the FRC’s work, generally satisfactorily applied by larger companies and its principles are well understood by certain sectors such as banking, insurance and real estate, the FRC notes that smaller companies can struggle with the requirements.  Further details are here.

DBT: Smarter regulation non-financial reporting review – Call for evidence (May 2023): The Department for Business and Trade (DBT) has announced that it is working with the FRC to review the non-financial reporting requirements UK companies need to comply with to produce their annual report and to meet broader requirements that sit outside of the Companies Act 2006. The review will also consider if current company size thresholds (micro, small, medium and large) that determine certain non-financial reporting requirements, and the preparation and filing of accounts with Companies House, remain fit for purpose. Further details are here.

DBT: Ethnicity pay reporting – Guidance for employers (April 2023): The DBT has published guidance for employers on how to measure, report on and address any ethnicity pay differences within their workforce. Further details are here.

BEIS: Reporting on Payment Practices and Performance Regulations 2017 – Government Consultation (January 2023): The Department for Business, Energy and Industrial Strategy (BEIS) published a Consultation Paper in January 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. Further details are here.