Corporate Governance

Shearman & Sterling LLP UK Corporate Governance Developments | 50 NEW OR EXPANDED ESG REPORTING REQUIREMENTS TCFD Climate-Related Disclosures The annual reports of standard listed issuers — including issuers of GDRs relating to shares — in respect of financial years starting on or after January 1, 2022, will have to include a statement as to whether the report includes disclosures consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD)'s final June 2017 report, and if any disclosures have not been made in this way, an explanation of why and the steps (with a timeframe) being taken to remedy this. Regulated asset managers and owners — to whom the new reporting rules will be introduced on a phased basis — will also have to disclose how they take climate-related risks and opportunities into account in managing investments. Premium listed issuers have had to make these disclosures in their annual reports since 2021. New Board Diversity Disclosures Annual reports of both premium and standard listed issuers must also, for financial years starting from April 1, 2022, include "comply or explain" disclosures about the diversity of gender and ethnicity on their boards and executive committees. Specifically, whether the issuer has met the following targets: at least 40% of board members are women, at least one of the board members who is the chair, CEO, CFO or senior independent director is a woman and at least one board member is from a "minority ethnic background." If any of the targets have not been met, reasons must be given. Additionally, in relation to both board and executive committee membership, issuers must provide numerical data on ethnic background and gender identity or sex, in the form of two respective prescribed tables. The gender identity or sex table provides for numerical reporting based on "men," "women" or "not specified/prefer not to say" but also "other categories" which the issuer may elect to use to reflect the basis on which it has collected data. The new listing rule recognizes the difficulties that some issuers may have in collecting this sort of data and so allows, where board or executives are situated abroad and data protection laws prevent or limit that collection, an issuer instead to explain the extent to which it cannot make the relevant disclosures. The FCA has said it will be reviewing these rules in three years' time to ensure that they are achieving their purpose — boosting diversity disclosure at the board and the senior executive management level — and to check if the diversity targets remain appropriate. SUSTAINABILITY DISCLOSURE REQUIREMENTS — THE UK'S ROADMAP TO SUSTAINABLE INVESTING Finally, in October 2021, the U.K. Government published what it called a roadmap to sustainable investing. This built on its 2019 Green Finance Strategy paper and is focused on developing over the next few years: • A new and integrated sustainability disclosure regime that will build on the existing TCFD-listed issuer and asset manager disclosures mentioned above and will be extended mandatorily to "economically significant" U.K. corporates. Disclosures will be based on the reporting standards to be developed by the International Sustainability Standards Board (being formed by the IFRS Foundation) together with certain new environmental impact reporting. As mentioned above, reporting under this new regime is likely to link to the new resilience statement that PIEs will be required to include in their annual reports, • A U.K. green taxonomy defining what it means for corporate activity and products to be "green" and providing the basis for the environmental impact reporting mentioned above, and • More responsible investor stewardship in relation to the U.K.'s sustainability commitments. CONCLUDING THOUGHTS This year has seen several important developments on the U.K. corporate governance scene which help underline the U.K.'s continued leadership in this area. They also demonstrate its willingness to consider and adopt a variety of governance approaches and solutions which combine mandatory legislative requirements with more flexible "soft law" and industry-led solutions. Critical to their success will be the Government's willingness to keep them as one of its key legislative and business priorities at a time when there are so many other seemingly more urgent and pressing economic challenges that it must grapple with. It is to be hoped that the new Government's self-declared pro-growth agenda will continue to recognize the importance to thriving investor markets, good business and corporate success, of the enhanced and focused corporate governance framework these recent developments promise.

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