Policy RoundUp - June 2024
Dear Member,
It was lovely to see so many of you at our annual conference earlier in the month – the conference committee and executive team yet again put together such an informative and inciteful programme, BRR’s excellent highlights video can be seen here! One of the themes of the day was optimism for London’s capital markets, so it is timely that we are expecting a final announcement on the FCA’s proposed Listing Rule reforms soon after the election.
Meanwhile, the policy committee has also been very busy submitting three responses, two of which were commenting on proposals aimed at improving the competitiveness of the London markets. In the case of re-bundling of research fees we supported the FCA's proposals for increased payment optionality provided the associated ‘guardrails’ are proportionate, and in respect of the proposed UK ISA we called for simplicity to allow straightforward and speedy implementation.
In our third submission, we commented on the UK assurance market for sustainability-reporting, which needs much more standardisation given the sizeable disparities in price and quality, rigour and methodology amongst providers. This will be possible once the underlying reporting becomes more standardised, so the ISSB’s recent announcements around further harmonisation of the sustainability disclosure landscape are very welcome. For example, the ISSB will be taking on the disclosure materials developed by the UK’s transition plan taskforce, and will consider how to build upon the TNFD recommendations to meet the information needs of investors as it embarks on its research project on biodiversity, ecosystems and ecosystem services.
TNFD has also issued some mapping guidance for disclosures and core metrics illustrating the high level of commonality achieved with the European Sustainability Reporting Standards (ESRS). It is also fantastic that the TNFD has finalised its value chain guidance, plus finalised guidance for various sectors and is consulting on guidance for five more sectors.
The EC has published an encouraging stocktake of the EU Taxonomy in action, finding that companies and other market participants are increasingly using the EU’s Taxonomy for their business strategies, transition planning and investing and lending activities.
Meanwhile, the GRI is consulting on its (digital) Sustainability Taxonomy (an XBRL format), which will allow the digital tagging of GRI Standards to facilitate better access and analysis for stakeholders – this follows the finalised ISSB digital taxonomy issued in April (see April’s RoundUp).
To assist members with the plethora of current and upcoming ESG Regulation for UK PLCs, the Society teamed up with NossaData to produce a conference handout illustrating developments in ESG regulation in the UK and abroad – you can access it here.
It was also fantastic to see lots of members at our AGM last week, well done for turning out despite the hot weather (and the football!).
Best wishes,
Liz Cole
Head of Policy and Communications
Linked In
www.irsociety.org.uk
MARKET REGULATION
Society responds on UK ISA proposals
This IR Society response calls for simplicity to allow straightforward and speedy implementation, supports the eligibility of companies listed/traded on a UK recognised stock exchange (including investment trusts) for the UK ISA, but questions the exclusion of companies with overseas incorporations (except in the case of secondary listings).
Society responds on re-bundling research fees
The IR Society response emphasises the importance of research for valuations and the London markets, noting the impact of MiFID II unbundling on the quality of coverage and the industry perspectives provided, drawing on the findings from our 2023 member poll on investment research. The Society is therefore supportive of the FCA's proposals for increased payment optionality as this could lead to increased/improved quality of coverage for small- and mid-caps, provided the associated ‘guardrails’ are proportionate and aligned with the equivalent US and proposed EU regimes.
‘Pre-close calls’ under the spotlight
ESMA has reminded issuers to follow good practices when engaging in 'pre-close calls' as they can influence the market and lead to volatility.
GOVERNANCE
IoD consults on new Director 'Code of Conduct'
The IoD is seeking to promote director integrity by consulting on a new voluntary Code of Conduct, which aims to assist directors of entities of all sizes with their decision-making and to promote high levels of integrity.
The Code is structured around six key ‘Principles of Director Conduct’, each of which is underpinned by a number of 'Undertakings', with a note in each section also commenting on the desired 'Outcomes' that will be achieved.
The IoD is seeking views on the draft Code by 16 August 2024, including whether directors should make a public declaration or disclosure of their adoption of the Code.
SUSTAINABILITY REPORTING
Society comments on the UK's sustainability assurance market
This IR Society response calls for increased standardisation, given the sizeable disparities in price and quality, rigour and methodology amongst providers.
Further International harmonisation for sustainability reporting
The ISSB has announced further harmonisation of the sustainability disclosure landscape as it embarks on its new work plan, including developments in strategic relationships with the Transition Plan Taskforce, GHG Protocol and TNFD.
Read our blog
TNFD Sector and Value Chain Guidance
The Taskforce on Nature-related Financial Disclosures (TNFD) has published final Additional sector guidance for eight real economy sectors to apply the LEAP approach, alongside updated Additional guidance for financial institutions to apply the TNFD Recommendations and final Guidance on value chains.
Finalised Additional sector guidance:
- Aquaculture
- Biotechnology and Pharmaceuticals
- Chemicals
- Electric Utilities and Power Generators
- Food and Agriculture
- Forestry and Paper
- Metals and Mining
- Oil and Gas
Additional guidance for financial institutions Additional guidance for financial institutions – TNFD
Guidance on value chains - Value chain guidance – TNFD
Alongside this guidance, TNFD have also published guidance for five additional sectors (Fishing, Engineering, construction and real estate, Construction materials, Beverages and Apparel, accessories and footwear), which are open for consultation and feedback until 27 September.
Draft sector guidance - Publications – TNFD
Mapping between TNFD and ESRS
EFRAG and the Taskforce on Nature-related Financial Disclosures (TNFD) have jointly published some mapping of the disclosures and core metrics illustrating the high level of commonality achieved between the European Sustainability Reporting Standards (ESRS) and the TNFD recommendations, metrics and additional guidance.
Key messages include:
- Concepts and definitions: Both ask for disclosure of nature-related impacts, risks and opportunities, and include dependencies;
- Approach to materiality: TNFD’s recommendations enable disclosures based on double materiality, which is required by ESRS;
- The LEAP approach: The ESRS suggest the use of TNFD’s LEAP assessment approach to identify and assess nature-related issues;
- Reporting pillars: Both are organised around the four TCFD disclosure pillars; and
- Recommended disclosures and metrics: All 14 disclosures recommended by the TNFD are reflected in the ESRS (including ESRS 1 (General requirements), ESRS 2 (General Disclosures), ESRS E1 (Climate change), ESRS E2 (Pollution), ESRS E3 (Water and marine resources), ESRS E4 (Biodiversity and ecosystems), and ESRS E5 (Resource use and circular economy)).
The mapping table goes into detail (at paragraph level) to compare and link TNFD with ESRS.
Read more: TNFD and EFRAG publish correspondence mapping
Stocktake of the EU Taxonomy in action
The European Commission has published a factsheet evidencing the market’s uptake of the EU Taxonomy. The results are encouraging, being based on reporting by entities within scope of the EU’s new rules requiring reporting against the EU Taxonomy.
The EC has found that companies and other market participants are increasingly using the EU’s Taxonomy for their business strategies, transition planning and investing and lending activities. Some of the key stats highlighted in the publication are set out below.
- Companies have started using the EU Taxonomy to plan and highlight their green investments. Around 20 per cent of companies’ capital investments are now aligned with the EU Taxonomy, with the utilities sector leading the way (particularly electricity providers, with over 60 per cent taxonomy-aligned investments).
- EU Taxonomy-aligned capital investment in 2024 is already outpacing 2023 figures. Companies have already reported capital investment into taxonomy-aligned activities amounting to €249bn – up from the €191bn reported in all of 2023 – and totalling €440bn in 2023 and 2024 (as of 6 May 2024).
- For financial years 2022 and 2023 (as of 26 May 2024) German companies led the way. Companies located in Germany have reported the highest taxonomy-aligned investments (€114bn), followed by France (€63bn), Spain (€60bn) and Italy (€48bn).
- In 2023, 90 per cent of green bonds issued by EU public sector referenced the EU Taxonomy.
- Banks are beginning to use the EU Taxonomy in lending strategies and in their assessment of companies’ investment plans. Mortgages and other loans to activities in scope of the EU Taxonomy represented over 50 per cent of the assets of large EU banks on first-year figures.
(The EU Taxonomy is available here: Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds. )
GRI Consults on Sustainability Taxonomy
The GRI has released its Sustainability Taxonomy (an XBRL format), which is open to public consultation until 11 August. This will allow the digital tagging of GRI Standards to facilitate better access and analysis for stakeholders.
The GRI Sustainability taxonomy will offer:
- Expanded reporting options: enables companies to provide reports based on the GRI Standards in XBRL alongside traditional formats such as pdf;
- A digital repository of information, provides a source for consistent impact-related sustainability data that will be useful for reporters, researchers and others;
- Automatic validation: ensures that a company’s sustainability report adheres to requirements of reporting "in accordance" or "with reference to" the GRI Standards; and
- Opportunities for interoperability: helping to ensure the same data can be used to report with different standards in the future.
You can download the Excel of the GRI datapoints and read the Introduction to the GRI Sustainability Taxonomy here: GRI - Consultation for sustainability specialists.
Summary of Current and Upcoming ESG Regulation for UK PLCs
For the conference, we teamed up with NossaData to produce a handout summarising developments in ESG regulation in the UK and abroad – you can access it here.
AI UPDATE
The EU Commission is consulting on the use of artificial intelligence (AI) in finance. The initiatives cover use cases, benefits, barriers, risks and stakeholder needs, and also involve and a series of workshops with all financial stakeholders.
The input received will enable the Commission to provide guidance to the financial sector for the implementation of the AI Act, the EU’s legal framework for AI, in their specific market areas. Responses are due by 13 September 2024. Views are particularly welcome from companies that already provide or use AI systems, or are planning to do so.
Targeted consultation on artificial intelligence in the financial sector - European Commission