Policy RoundUp - February 2024
Dear Member,
February was another busy month for policy, with the FRC kicking off their ‘root and branch’ review of the Stewardship Code, announcing their outreach on engagement and issuer reporting burdens. The Society is proposing to arrange some member roundtables to enable key volunteers to provide feedback to the FRC. Ahead of the 2024 AGM season, there have also been more of the usual updates on voting guidelines (PLSA) and remuneration policies (IA).
AI remains topical, with the Government confirming its light touch regulatory regime will be flexible and agile.
Meanwhile, we are a step closer to EU regulation of ESG data and ratings providers.
We will shortly know what the SEC’s long-awaited climate reporting rules will be, with the SEC due to consider final rules tomorrow. Below you will also find updates on emissions reporting and nature reporting, and the latest guidance from the ISSB including industry-specific disclosures.
Finally, a reminder that the FCA consultation on reforming the listing regime closes this month (22 March). The proposed move towards a disclosure-based regime is not without its issues, and the Policy Committee is considering some of the practical implications of the FCA’s proposed ‘enhanced announcement requirements’ for significant transactions. These are almost a pseudo-circular, but would be required at announcement stage rather than 8 weeks later, which raises questions around verification checks (given the role of advisers in the preparation of financial information would be at the discretion of the issuer) and (if permitted) would companies want to include any disclaimers etc.
Best wishes,
Liz Cole
Head of Policy and Communications
Linked in
www.irsociety.org.uk
FRC Review of Stewardship Code
The FRC is seeking views from all stakeholders on whether the Code, in its current format, is being used by asset managers/owners in a manner that drives better stewardship outcomes from engagement with issuers. To inform their formal consultation, the FRC are conducting targeted outreach on issues such as engagement, short-termism and issuer reporting burdens, and the Society is proposing to arrange some roundtable events to enable members to provide feedback to the FRC.
PLSA publishes Stewardship and Voting Guidelines for 2024
The Pensions and Lifetime Savings Association (PLSA) has published its Stewardship & Voting Guidelines 2024, which set out the PLSA’s views and voting recommendations on key issues. Key new issues covered in the 2024 guidelines include Cybersecurity, AI, ESG and Dual Class share structure. The guidelines have also been updated to reflect the 2024 UK Corporate Governance Code.
Investment Association to update Principles of Remuneration
Given the Investment Association did not issue their usual annual update to their Principles of Executive Remuneration last autumn (in time for remuneration reports preparation and the AGM season), the IA have now written to FTSE 350 companies’ remuneration committee chairs, reviewing the 2023 season and setting priorities for 2024. Following engagement with companies, the IA plan to review and publish simplified, updated Principles later in 2024.
Private company reporting needs greater clarity
The FRC‘s Thematic Review on Reporting by the UK's largest private companies contains a summary of the FRC's key findings that companies and their auditors should take into account for future annual reports. Overall, the quality of reporting was mixed, particularly in terms of how clearly companies explained material matters that were complex or judgemental.
UK ‘Agile’ Regulation of Artificial Intelligence
The UK government has published a response to its 2023 AI Regulation White Paper, which outlined the UK government’s “flexible” approach to regulating AI through five cross-sectoral principles for the UK’s existing regulators to interpret and apply within their remits. The proposed five principles received “strong support” and the UK government is committed to a context-based approach that does not contain “unnecessary blanket rules” that apply to all AI, notwithstanding the use of the technology.
EU regulation of ESG ratings
The EU has reached a provisional agreement on the upcoming ESG ratings regulation which would require ESG rating providers to be authorised and supervised by ESMA and comply with transparency requirements, in particular with regard to their methodology and sources of information. The agreement also foresees the possibility of providing separate E, S and G ratings, and encourages more raters to address impact/double materiality.
US SEC to vote on climate
The SEC will vote this Wednesday (6 March) on whether to require climate change-related disclosures in the annual reports of domestic and foreign private issuer registrants.
Nature reporting update
The GRI Biodiversity standard is now available, TNFD has announced the list of early-adopters, and the UN has published a comparison of various nature-related standards and frameworks.
Emissions reporting update
The ISSB and GRI have published some GRI-ISSB interoperability guidance for GHG emissions reporting, demonstrating a high degree of alignment so companies disclosing Scope 1, 2 and 3 under the GRI Standards will be well positioned to report in accordance with IFRS S2.
A summary of Q&As related to the ESRS standards used for CSRD reporting has also been published on the ESRS Q&A platform. This first set of 12 Explanations includes clarifications for companies that need to disclose GHG emissions for several subsidiaries within the same group.
ISSB Update – industry-specific disclosures and materiality judgements
The ISSB has published a webcast and educational material highlighting the importance of industry-specific disclosures to investors, which provide comparable, decision-useful insights, and explaining how companies can use the SASB Standards to meet the requirements in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
The IFRS Foundation has also published a summary of evidence gathered by various overseas standards-setters on the effects of guidance on materiality judgements in IFRS Accounting Standards and other materials.
By way of reminder, the ISSB has published educational material in five areas:
- Comparison of IFRS S2 with the TCFD recommendations
- Nature and social aspects of climate-related risks and opportunities
- Interoperability considerations for GHG emissions when applying GRI Standards and ISSB Standards (see above)
- Using the SASB Standards to meet the requirements in IFRS S1 (see above)
- How to apply the Integrated Reporting Framework with IFRS S1 and IFRS S2