Ashurst Governance and Compliance Update - Issue 6
21 October 2021
IN THIS EDITION WE COVER THE FOLLOWING: |
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ESG Developments 1. Climate change reporting: TCFD publishes 2021 status report 2. The Chancery Lane Project publishes a Net Zero Toolkit |
Narrative and financial reporting 3. European Single Electronic Format "ESEF" Reporting 4. FRC publishes thematic review into the use of Alternative Performance Measures 5. FRC publishes review on viability and going concern disclosures |
Remuneration 6. LGIM publishes its UK Principles of Executive Pay 2021 |
Declaring dividends in 2022 7. LSE publishes 2022 Dividend Procedures Timetable |
Reform: Dematerialisation and electronic signatures 8. Dematerialisation and use of electronic signatures |
ESG DEVELOPMENTS |
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1. Climate change reporting: TCFD publishes 2021 status reportThe Task Force on Climate-related Financial Disclosures (TCFD) has published its 2021 Status Report in which it sets out how disclosures of climate-related financial information aligned with the TCFD recommendations have developed since its 2020 review. It is of particular interest this year given that many premium-listed companies will be producing their first reports in accordance with the TCFD's recommended disclosures in 2022. By way of reminder, the FCA is currently considering extending the reporting obligation to issuers of certain standard-listed equity securities, asset managers and life insurers and the government is also considering feedback on its March 2021 consultation to extend the reporting obligation still further to certain AIM-quoted and larger private companies as well as limited liability partnerships. The report finds that the disclosure of TCFD-aligned climate-related financial information has accelerated over the last year, growing by nine percent in 2020 (2019: 4 per cent), with over 50 per cent of the companies reviewed disclosing their climate-related risks and opportunities. More than 2,600 organisations have expressed their support for the TCFD recommendations, an increase of over a third since the 2020 status report. Supporters include 1,069 financial institutions, responsible for assets worth $194 trillion, with a combined market capitalization of over $25 trillion — a 99 per cent increase since last year. More specifically, the status report finds that:
The Task Force has also published:
2. The Chancery Lane Project publishes a Net Zero ToolkitAhead of the UN's November 2021 COP26 climate conference, The Chancery Lane Project (TCLP) has published a "Net Zero Toolkit" to help lawyers amend contracts to meet net zero goals. The Toolkit includes:
The new clauses principally cover corporate governance, supply chain contracts, construction and infrastructure projects, finance and insurance contracts and are relevant to several practice areas, including corporate, commercial and employment. |
NARRATIVE AND FINANCIAL REPORTING |
3. European Single Electronic Format "ESEF" ReportingBy way of reminder, DTR 4.1.14 of the Financial Conduct Authority (FCA) Handbook implements the requirements of the European Single Electronic Format (ESEF) regime in the UK and requires issuers with transferable securities admitted to trading on UK regulated markets to produce their annual financial reports in a structured electronic format for financial years beginning on or after 1 January 2021. We covered various recent developments on the issue in Ashurst Governance and Compliance update, Issue 5. By way of further update, the FCA has updated its webpage: "Filing of Structured Annual Financial Reports", which includes an overview of the filing process for such reports and a link to the "ESS submission portal". It also encourages issuers to file reports in this format voluntarily ahead of being required to do so both to improve transparency and help companies themselves prepare for the advent of the mandatory regime. The webpage also sets out feedback which the FCA has received on the submission system and advance notification of modifications it intends to make to it. In addition, the FCA notes that it will be making changes to the mandatory reporting regime, including enabling the system to reject submissions which do not use a permitted taxonomy. FCA submission guides will be updated in due course to provide more information on these changes. On the same issue, the Financial Reporting Lab (FR Lab) has published a report: "Structured reporting: an early implementation study" which aims to support companies in their implementation of the requirements. In producing the report, the Lab looked at fifty early structured reports from across the UK and Europe. These reports were either voluntary filings or originated from EU countries where the requirements have already come into force. Key messages from the report include:
The Lab intends to produce further guidance if necessary and will be hosting a webinar on 7 December 2021 for companies and service providers. Further Lab resources on the topic and a registration page for the webinar can be found here. 4. FRC publishes thematic review into the use of APMsThe Financial Reporting Council (FRC) has published a thematic review into the use of Alternative Performance Measures (APMs) by 20 UK-listed companies. The review assesses the quality of APM reporting in the UK, five years after the implementation of ESMA's Guidelines on Alternative Performance Measures and the introduction of IOSCO's Statement on Non-GAAP Financial Measures. It is the second such review the FRC has undertaken, following its 2017 thematic review. The review sets out the FRC's disclosure expectations as regards APMs, reflecting the ESMA Guidelines, which it expects main market companies to continue to apply notwithstanding the UK's withdrawal from the EU. The review also sets out additional expectations developed from other FRC publications and routine monitoring work. The FRC also notes that AIM-quoted companies and other entities that use APMs should apply the guidelines as they reflect best practice. Findings of the review The FRC found that, in general, companies provided good quality disclosures around their use of APMs, including as to their labelling and when defining them. However, around half of the companies surveyed gave APMs more prominence or ascribed more authority to them than GAAP measures in some areas of their reporting. The FRC expects companies to ensure that, as APMs are supplementary measures, they are not displayed more prominently than GAAP measures and that narrative reporting does not give them greater focus. It also expects to see Audit Committee reports explain the Committee’s oversight, monitoring and challenge in relation to the formulation and use of APMs. Key expectations for 2022 In the 2022 reporting season, the FRC expects that companies should:
5. FRC publishes review on viability and going concern disclosuresThe FRC has published a review of companies’ viability and going concern disclosures in which it identifies several areas where reporting could be improved. The review builds upon the information contained in the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting and complements various recent FR Lab publications including: "Risk and Viability reporting", "Covid-19: Going concern, risk and viability" and "Reporting on risks, uncertainties, opportunities and scenarios", all of which have been covered in prior AGC updates. It is worth remembering that the perceived lack of insight delivered by going concern and, particularly, viability reporting has led to the government proposing the requirement for an enhanced "Resilience Statement" as part of its package of reforms to restore trust in audit and corporate governance. The FRC states that clear and comprehensive disclosures on these matters are particularly important given the backdrop of the Covid-19 pandemic which has caused greater uncertainty for some companies. In turn, it believes that such uncertainties which may impact viability or going concern should be clearly explained to stakeholders. In particular, the review found that:
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REMUNERATION |
6. LGIM publishes its UK Principles of Executive Pay 2021Legal & General Investment Management (LGIM) has published its investor guidelines (Guidelines) regarding executive pay, in which it sets out various principles which supports its Corporate governance and responsible investing policy (Investing Policy). The Guidelines echo many of the recommendations which already feature in the Investment Association's (IA) Principles of Remuneration (IA Principles) and the FRC's UK Corporate Governance Code (Code). That said, LGIM's Guidelines also contain its own spin on some of the IA's requirements, as well as including some unique recommendations, primarily focusing on fairness for the wider workforce, changes to reflect the impact of COVID-19, ESG-related factors, and remuneration policies and arrangements which prioritise simplicity. Noteworthy elements which are not already outlined in the IA Principles and/or the Code and which highlight those key points contained in LGIM's Investing Policy include:
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DECLARING DIVIDENDS IN 2022 |
7. LSE publishes 2022 Dividend Procedures TimetableThe London Stock Exchange (LSE) has published its 2022 Dividend Procedures Timetable. By way of reminder, the LSE updates the timetable on an annual basis as a guide for companies with shares listed on the Official List or admitted to trading on AIM which should be used when setting their interim and / or final dividend programmes. Changes made to this latest iteration of the timetable include:
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REFORM: DEMATERIALISATION AND ELECTRONIC SIGNATURES |
8. Dematerialisation of shares and use of electronic signaturesAs part of the second phase of the government's response to recommendations made by the Taskforce on Innovation, Growth and Regulatory Reform on how the UK can reshape its approach to regulation following the UK's withdrawal from the EU, the government has proposed:
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