Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP 63 | U.K. Corporate Governance Developments for reform of company law to enable: (i) two-way dialogue between companies and their end-investors via a sector-wide standardized technology platform, (ii) digital communications becoming the default means of shareholder engagement instead of being an "opt- in" choice, (iii) no more requirements for hard copy annual reports except for those who specifically want to receive one and (iv) fully virtual meetings, coupled with a requirement—no doubt to address investor concerns about such meetings—to provide answers to any prior questions either in the meeting or on the company's website shortly after the meeting. OTHER DEVELOPMENTS A New Equity Share Single Listing Segment In May 2023, the Financial Conduct Authority (FCA), the U.K.'s securities regulator, published semi-finalized proposals for the merging of the existing premium and standard listing segments into a single listing segment for equity shares in commercial companies. The FCA is proposing issuing a final consultation paper on these listing rule changes—the biggest changes in over a decade—together with the text of the new listing rules, later this year, with the new rules likely coming into effect sometime during 2024. For U.K. corporate governance, the significance of this major listing regime change will be in extending the current premium listing requirement to report against the Code's requirements to all listed issuers, and in removing from shareholders the current premium listing requirements for companies to obtain shareholder approval for "major transactions"—typically M&A transactions that meet certain "transaction size" class tests—and for certain related party transactions. In addition, listed issuers will be given greater freedom in the use of dual class share structures. Previously, "weighted voting" shares were not eligible for a premium listing but in December 2021 the FCA allowed them, in an attempt to encourage the listing of start- up tech companies in the U.K., but with a number of important limitations, including a limit of 20 votes per share, a five-year life before they would automatically convert into one-vote per share and limiting their weighted voting rights to defeat attempts to remove the founder as a director or on a 50%+ change of control. Under this new single equity listing segment, those limitations would largely be removed and a ten-year life for such shares permitted. 5 Enhanced Sustainability And Climate-Related Disclosures In June 2023, the International Sustainability Standards Board (ISSB) issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (S1) and IFRS S2 Climate-related Disclosures (S2) (together, the "ISSB Standards"), both with accompanying (illustrative but non- interpretative) guidance. IFRS S1 And S2 S1 requires an entity to disclose in its annual financial report information about all sustainability-related risks as well as opportunities that could reasonably be expected to affect the entity's cash flows and access to finance or cost of capital, over the short, medium or long term ("sustainability disclosures"). It sets out how these disclosures are to be made or presented and general requirements with respect to their content. These requirements include: • the governance processes, controls and procedures used to identify, assess, prioritize, monitor, manage and oversee the sustainability disclosures; • the strategy for managing the sustainability disclosures; • how the entity has performed in relation to the sustainability disclosures, including progress towards meeting any targets it has set itself or is required to meet by law or regulation. S2 has a similar purpose and reporting requirements to S1 but is focused on climate change risks—physical as well as transition—and opportunities. Both S1 and S2 apply to accounting periods starting on or after January 1, 2024. The U.K. Government has previously confirmed its commitment to building the U.K.'s corporate sustainability disclosure requirements around these ISSB Standards once finalized and formally endorsed as U.K. accounting standards, and it re-confirmed this commitment in March 2023 in its Mobilizing Green Investment: 2023 Green Finance Strategy paper. The Government has said that its aim is to make a decision on endorsement within 12 months of the ISSB Standards being published (and sooner if possible). The FCA has announced that it will be consulting on updating the current TCFD "comply or explain" disclosures for premium and standard-listed equity issuers so that they align with the ISSB Standards once 5 See Shearman & Sterling LLP, "FCA Moves Ahead with a Single Equity Listing Category," https://www.shearman.com/en/ perspectives/passle/102ie85/fca-moves-ahead-with-a-single-equity- listing-category (May 15, 2023).