Ashurst Governance and Compliance Update Issue 15
22 March 2022
IN THIS EDITION WE WILL COVER THE FOLLOWING: |
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Economic crime1. Economic Crime Bill received Royal Assent |
Diversity2. Parker Review 2022 shows progress on ethnic diversity but work still to do |
Narrative Financial Reporting3. PLSA analyses workforce reporting in FTSE 100 |
Stewardship4. FRC publishes latest signatories to UK Stewardship Code |
ESG and activism5. ClientEarth alleges breach of directors' duties by Shell board 6. ShareAction publishes expectations of asset managers in 2022 |
ECONOMIC CRIME |
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1. Economic Crime Bill receives Royal AssentWe reported in Ashurst Governance & Compliance Update, Issue 14 that the Economic Crime (Transparency and Enforcement) Bill was being fast-tracked through Parliament partly in response to the invasion of Ukraine. The Bill has received Royal Assent and is now the Economic Crime (Transparency and Enforcement) Act 2022. Register of overseas entities holding UK propertyPart 1 of the Act aims to prevent money laundering by requiring overseas entities purchasing UK property to provide details of any beneficial owners with significant influence or control. This information will be held at Companies House in a new Register of Overseas Entities. Information supplied by an overseas company or entity will need to be verified and updated annually. Supplying false or misleading information or failing to update the Register will be an offence. The requirement to register will apply retrospectively to property purchased in England and Wales by overseas buyers up to 20 years ago (and since December 2014 in Scotland). Unexplained Wealth OrdersPart 2 of the Act reforms the Unexplained Wealth Order (UWO) regime by bringing those who hold property in the UK in a trust within the scope of UWOs and increasing the time available to law enforcement agencies to review material provided in response to a UWO. SanctionsPart 3 of the Act introduces a new streamlined procedure for implementing sanctions against individuals and a strict liability test for monetary penalties imposed for breaches of sanctions legislation. In this context, the Chartered Governance Institute for UK & Ireland has issued a reminder of considerations for listed companies with regard to sanctions. This includes issues in relation to distributions of capital, including the payment of dividends in the current AGM season, and further equity issuances. In summary, and as with sanctions in the past, companies will need to check their shareholder registers to ascertain whether they contain proscribed individuals. This is to ensure that they do not make distributions to them and that their assets are frozen, whether those assets are held by individuals or entities. The use of section 793, Companies Act 2006 procedures to identify underlying beneficial owners of shares may need to be contemplated and in relation to which a company's registrars will clearly play a significant role. Corporate action timetables will also need to be calibrated to enable sufficient time to interrogate registers and deploy section 793 notices if needs be. TimingThe procedure for implementing sanctions against individuals are in force but the other provisions of the Act will be brought into force by commencement regulations, which are yet to be published. More detailed briefings will be published in due course. |
DIVERSITY |
2. Parker Review 2022 shows progress on ethnic diversity but work still to doThe Parker Review committee has published the results of its latest review of ethnic diversity in the FTSE 350, in conjunction with the Department of Business, Energy and Industrial Strategy. The Review found that:
Now that the FTSE 100 milestone has passed, Sir John Parker has passed the role of Chair to his current Co-Chair, David Tyler. The Review also summarises some of the preliminary findings of research undertaken for the FRC by the Gender, Leadership and Inclusion Research Centre (GLIC) at Cranfield University. The research is focused on the barriers preventing individuals from minority ethnic groups achieving senior representation in FTSE 100 and FTSE 250 companies. The Review summarises findings based on a review of annal reports and participant data. A reminder of voting intentions in 2022By way of reminder, as regards ethnic diversity on boards:
As regards gender diversity, please see Ashurst Governance & Compliance update, Issue 13 for an overview of the launch of the FTSE Women Leaders Report which set a revised aspirational target for the FTSE 350 of 40 per cent women on boards by 2025. More recently, the Chartered Governance Institute for UK & Ireland released the results of a 'snapshot' survey of governance professionals which revealed that, notwithstanding the FTSE Women Leaders target, more than 50 per cent of UK companies and not for profits have plans to reach gender parity, with 75 per cent of respondents reporting the fact of their company supporting women into senior leadership roles. |
NARRATIVE FINANCIAL REPORTING |
3. PLSA analyses workforce reporting in FTSE 100The PLSA has published a report, produced in partnership with the CIPD, and Railpen, which analyses the quality of workforce-related reporting in FTSE 100 2021 annual reports. The report focuses on seven key themes in relation to a company's 'most important asset':
The report makes the following observations:
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STEWARDSHIP |
4. FRC publishes latest signatories to UK Stewardship CodeThe FRC has published an updated list of signatories to the UK Stewardship Code. The number of those with signatory status now stands at 199, swelled by the 74 successful applicants who submitted their stewardship reports at the end of October 2021. A proportionately similar number of applicants were successful as in September 2021, which means that approximately one third failed to make the grade. |
ESG AND ACTIVISM |
5. ClientEarth alleges breach of directors' duties by Shell boardThe environmental law charity, ClientEarth, has taken the first step in bringing a derivative claim against the board of directors of Shell plc alleging that they have breached their duties in failing to manage the company's climate risk and prepare the company for the transition to net zero emissions as 'mandated' by the Paris Climate Agreement. In doing so, ClientEarth has issued the company with a letter before action which it believes to be the first of its kind in these circumstances. 6. ShareAction publishes expectations of asset managers in 2022ShareAction, the NGO which seeks to promote responsible investment, has published its '2022 Voting Expectations of Asset Managers' in which it focuses on shareholder voting on ESG-related resolutions. Its expectations are based on analysis of voting in 2021 by 65 of the world's largest asset managers in relation to 146 'environmental and social resolutions', where only 20 per cent received majority support. In 2022, ShareAction expects asset managers to:
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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.