In this month’s ESG Market Alert:

• The UK has adopted mandatory climate-related financial disclosures applicable to the UK’s largest companies and financial institutions;
• The FCA publishes new resources in connection with the MIFIDPRU Remuneration Code; and
• Developments in market practice – Companies facing increased shareholder pressure to voluntarily disclose how they are retaining talent and engaging with their workforce.

UK imposes mandatory climate-related financial disclosures for the UK’s largest companies and financial institutions

• The UK has become the first G20 country to enshrine into law mandatory climate-related financial disclosures. These disclosure requirements will apply to:

• all UK Relevant Public Interest Entities (PIEs) (being companies currently required to produce a non-financial information statement); and
• all other UK registered companies or LLPs with: (i) over 500 employees; and (ii) a turnover of more than £500 million (determined on a consolidated basis).

• The two new statutory instruments, The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (together, the “CFD Regulations”) setting out these new reporting requirements were published by the Department for Business, Energy and Industrial Strategy on 17 January 2022. These disclosure obligations are in addition to the existing FCA Listing Rules which already require premium listed issuers in the UK to make disclosures in accordance with the TCFD recommendations on a “comply or explain basis”.

• The CFD Regulations come into force on 6 April 2022 and apply to financial years for in-scope entities beginning on or after that date. All in-scope entities will have to disclose:

• A description of the governance arrangements in place to manage climate-related risks and opportunities;
• A description of the entity’s business models and strategy, and the potential and actual impacts of climate-related risks and opportunities to the entity as well as analysis of the entity’s resilience to such impacts;
• A description of the principal climate-related risks and opportunities and how these risks are integrated into the entity’s risk management process; and
• A description of the entity’s targets to both manage climate-related risks and realise climate-related opportunities as well as the entity’s performance against such targets.

Read the full article on mandatory climate-related financial disclosures here.

FCA publishes new resources in relation to the MIFIDPRU Remuneration Code

• The FCA has published a new webpage consolidating its resources relating to the MIFIDPRU Remuneration Code (SYSC 19G) (the “Code”). The Code relates to performance periods starting on or after 1 January 2022 and sets out the minimum requirements with which MIFIDPRU investment firms must comply. The webpage provides an overview of the Code covering proportionality, performance adjustment, reporting requirements and disclosures. It also provides links to other relevant material, including the following two new templates:
  • A remuneration policy statement (RPS) template - this is a tool designed for firms to use to document their remuneration policies and practices.
  • A table of material risk takers (MRTs) – this table can be used by firms to maintain a record of their assessment as to which staff members are identified as MRTs as required by SYSC 19G.5.2.R.
• While it is not compulsory to use the templates, they may act as a useful tool for firms to check their compliance with the Code.

The new webpage can be found here: MIFIDPRU Remuneration Code (SYSC 19G) | FCA

Developments in market practice

Companies are facing increased pressure to voluntarily disclose how they are retaining talent and engaging with their workforce in response to increasing and evolving stakeholder expectations. Employee welfare was identified as a growing trend in 2021 with shareholder proposals taking on many forms in recent years as both investor and employee expectations have evolved. Such proposals range from employee-executive compensation alignment, reporting on the inclusion of non-management employees in board-level decision making, and the adoption of employee stock ownership plans.

Whether recent developments in this area will mean that leading investors vote in favour of shareholder proposals concerning employee and board engagement remains to be seen, however there is undoubtedly growing support for such proposals. Key examples of this are recent shareholder proposals seeking employee representation on boards which, although they have failed to win majority support from investors, have won increasing support over the last three years, winning an average of 3.5%, 4.5% and 7.6% of support in 2019, 2020 and 2021 respectively.