Market Update:

  • Listing Rule Changes
  • Corporate Governance Code Review
  • Emission Goal Setting
  • Positive Corporate Culture
  • QCA Good Governance Review
  • Women on Boards

Georgeson Update:

  • Georgeson memos about the 2022 ISS Updates
  • Georgeson memo about the 2022 Glass Lewis Updates
  • US & Europe: Georgeson’s Hannah Orowitz, Domenic Brancati and Daniele Vitale were quoted in IR Magazine
  • Basel Committee – Climate related financial risk consultation
  • Scope 3 Earnings Call Buzzword


Market Update
 

New rules came into effect in December 2021 following an earlier FCA consultation that was triggered by the recommendations found within the Hill Review. The FCA have made all the changes proposed within their consultation, with two major amendments.

  • the minimum market capitalisation for listing will increase from £700,000 to £30m, rather than the proposed £50m; and
  • the proposed stance on making no changes to the three-year track record requirements are being reconsidered. It is anticipated that a further consultation on this matter will be issued in the first half of 2022.

As a reminder, the new rules are:

  • Dual share class structures are permitted for premium listed companies, subject to some limitations.
  • The percentage of shares that are to be held in public hands has been reduced from 25% to 10%.
  • Minimum market capitalisation is now set at £30m, a rule which only applies to new listings.

Within the original FCA consultation there were also proposals regarding another Hill Review recommendation in relation to the UK market segment. The FCA considered four options which included merging or rebranding the primary and standard segments. It is now understood that the FCA will be issuing a more detailed consultation during 2022 to look at this specific matter.

CPU’s View

We welcome initiatives that are designed to improve the attractiveness of the UK IPO market; however, these changes may not be suitable for all sizes and styles of companies and there remain many unanswered questions that may have practical implications. We’ll need to watch what happens. Could the reduced share of capital in public hands bring about a challenge for companies with their market liquidity? Could combining standard and primary segments of the market impose undue consequences for companies in relation to governance standards?


The FRC have published their annual review of the Corporate Governance Code (“the Code”), which considers the quality of reporting against the Code during 2021 together with the Council’s expectations for the coming year.

It is noted that companies have overall improved, particularly in the area of reporting on environmental and social matters.

Also identified within the report was that there has been an increase in declarations of non-compliance and therefore the FRC has reiterated that companies need to be clear as to the reasons for the departure from the Code by providing a full explanation. There has been a clear improvement in reporting on stakeholder engagement, but companies are now being asked to focus on the outcomes of such engagement. The report provides specific guidance to companies on how to improve reporting around suppliers, communities and modern slavery.

The FRC note that it is not sufficient for boards to simply state that they have reviewed the effectiveness of the organisations risk management systems, but that they should set a comprehensive description of the review process and be clear on any actions taken or to be taken as a result. There also continues to be concerns regarding what they see as inadequate disclosures around succession planning, with many disclosures focused on process rather than demonstrating consistency between plans, diversity & inclusion policies and strategy.

CPU’s View

We welcome the FRC’s review. However, we think the market would find it helpful if the review were accompanied with some more practical guidance that not only addresses the quality of reporting, but also considers the impact of the ever-increasing quantum of reporting. We must wonder if in the coming months a revision of the Code is not in order to take account of recent recommendations from the Hill Review, the impending changes at the FRC and the new ESG reporting requirements.

Eversheds Sutherland have released a guide to Emission Goal Setting, which covers how and where to start, different levels of emission goals that could be considered, plus various approaches that can be used to reach the goals.

The document also succinctly explains Scope 1, 2 and 3 emissions and differences between different carbon definitions including ‘carbon neutral’ and ‘net zero’.

CPU’s View

A helpful introductory read on issues connected with the carbon footprint of businesses!

Things to consider:

  • Climate change poses both risks and opportunities for companies, now and in the future.
  • The Taskforce on Climate-related Financial Disclosures (TCFD) framework is being used as a basis for mandatory climate reporting for listed companies in many countries around the world.

A new report from the FRC aims to promote good practice within companies by seeing how they develop, embed, monitor and assess culture throughout their organisations.

This report following a similar report published by the FRC in 2016 that looked at corporate culture and the role of the board, and that went on to inform the changes to the latest version of the Corporate Governance Code.

Within this new report the Council note that the pandemic has meant some have had to adapt strategies and business models quickly which in turn has seemingly led to an emphasis on environmental, social and governance matters amongst investors and stakeholders. However, the report makes clear that a positive culture should be reached via honest conversations and the building of trust with leadership coming from the top.

It is understood that this will be an area of continued monitoring for the Council and that they are likely to produce further guidance in the coming months.

The Quoted Company Alliance in association with UHY Hacker Young have released their annual AIM Good Governance Review. This report analyses the disclosures of 50 small and mid-sized companies. There is a focus within the report on post-covid recovery, ESG and board performance.

The report identifies that the world of work is changing and that while this may mean different things for each company, the key feature of a return to work is increased flexibility. They also recognised that the Black Lives Matter movement and employee wellbeing have put a spotlight on their approaches to diversity and inclusion with a significant focus at management and leadership level.


A report entitled ‘The Hidden Truth’ has been released by the Women on Boards organisation, who claim that it provides the most comprehensive view of the state of diversity and inclusion across the FTSE All-Share, excluding the FTSE 350, while integrating gender pay gap data for those same companies.

It states that beyond the overall numbers of female non-executives, progress more generally has been limited including a significant ‘diversity divide’ between those who have major female representation on their boards and those who have only paid the matter lip service.

  • Within the FTSE-All Share (excluding FTSE350) there is only 7% of female CEOs, only 3% directors of colour and 16% of women hold chair positions.
  • 98 companies either have one or no women on their boards.
  • They also have above national average gender pay gaps at 17% (national averaging being 13.7%) and the bonus pay gap standing at 36% (national average 20%)

The report also makes a number of recommendations for FTSE All-Share companies including aiming to reach the ‘gold standard’ of 40:40:20 gender balance, standardise and integrate diversity reporting in all forms to provide greater transparency.

CPU’s View

This report provides for some stark reading. With the continued focus on female representation and more general diversity of board and executive representation, it is surprising that organisations outside of the FTSE 350 are not keeping pace and are not able to benefit from the diversity of thought that results from having a broad range of individuals in your management team. This report shines a light on an important topic where more needs to be done and we welcome this continuing until there is sustainable improvement, which of course means addressing underlying factors such as improving the pipeline of diverse talent.


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Georgeson market update
 

Georgeson have published memos summarising the 2022 ISS updates for the US and European markets.


Georgeson have published a memo summarising the 2022 Glass Lewis updates for the UK and Europe.


Georgeson’s Hannah Orowitz, Domenic Brancati and Daniele Vitale were quoted in IR Magazine.

“Climate and social issues expected to be front and centre at AGMs: Mike Schnitzel explores the issues that have dominated – and will continue to dominate – AGMs, according to industry watchers, and looks at how the Covid-19 pandemic has changed the way AGMs are conducted.”


The Basel Committee on Banking Supervision (BCBS) has published a consultation paper on principles for the effective management and supervision of climate-related financial risks.

“Basel Committee issues public consultation on principles for the effective management and supervision of climate-related financial risks. The consultation paper seeks to promote a principles-based approach to improve banks' risk management practices and supervisory practices related to climate-related financial risks. The Committee invites comments on the principles by 16 February 2022.” See the full consultation paper here.


The Wall Street Journal reports that ‘Scope 3’ becomes earnings-call buzzword.

“Executives are getting peppered with questions about Scope 3 emissions on earnings calls, a sign that analysts and investors are drilling into the detail of corporate promises to reduce the carbon footprint of their supply chains. Companies around the world were asked questions that included the term “Scope 3” more than 100 times during calls with analysts so far this year, according to Sentieo Inc., a financial data firm.”


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