Included in this issue of our Governance & Compliance Update: Proposed changes to ISS voting policy to increase gender diversity and Rem Com disclosure; A rough guide to the "new" Miscellaneous Reporting Regulations 2018; FRC publishes thematic reviews of Impairment of Non-financial Assets disclosures; and more...
Proposed changes to ISS voting policy to increase gender diversity and Rem Com disclosure
Institutional Shareholder Services Inc. (ISS) has published a consultation proposing changes to its benchmark voting policies – see, in particular, pages 20-23.
Gender diversity: ISS will generally recommend a vote against the chair of the Nom Com (or other directors on a case-by-case basis) when there are no female directors on the board. Mitigating factors may include the presence of a female director on the board at the preceding annual meeting and a firm commitment, made publicly available, to appoint at least one woman director to the board within a year.
Use of Rem Com discretion: Where a Rem Com uses its discretion to determine payments, it should provide a clear explanation of its reasons, which are expected to be clearly justified by the financial results and the underlying performance of the company. ISS also recommend that the Rem Com discloses how it has taken into account any relevant environmental, social, and governance (ESG) matters when determining remuneration outcomes. Such factors may include (but are not limited to):
- workplace fatalities and injuries;
- significant environmental incidents;
- large or serial fines or sanctions from regulatory bodies; and
- significant adverse legal judgments or settlements
If taken forward the changes will apply to company meetings taking place on or after 1 February 2020. Comments on the proposals must be submitted by 18 October 2019.
Narrative & Financial Reporting
A rough guide to the "new" Miscellaneous Reporting Regulations 2018
In response to a number of questions, we have published a rough guide to the scope of the Companies (Miscellaneous Reporting) Regulations 2018 (2018 Regulations). This is designed to assist in the initial analysis of which companies are required to enhance their disclosures in accordance with the 2018 Regulations, including the need to produce a section 172(1) statement and, for very large companies, publish a statement of governance arrangements. By way of reminder, the 2018 Regulations apply to financial periods beginning on or after 1 January 2019. Additional guidance can be found in the BEIS Q&A on the 2018 Regulations, which was last updated in November 2018.
FRC publishes thematic reviews of Impairment of Non-financial Assets disclosures
The Financial Reporting Council (FRC) believes that companies have responded positively to the newly introduced reporting requirements for revenue recognition and financial instruments but there is still considerable scope for them to improve the quality of their annual report disclosures. The findings relate to three thematic reviews analysing companies' disclosures to meet the new requirements as well as existing requirements on the Impairment of Non-financial Assets, specifically:
- IFRS 9 – "Financial Instruments";
- IFRS 15 - "Revenue from contacts with customers"; and
- Impairment of Non-financial Assets.
FCA issues update on European single electronic format
The Financial Conduct Authority (FCA) has published the latest of its Primary Market Bulletins (Issue 24) in which it provides an update on its proposals in relation to the implementation of the European single electronic format (ESEF). Proposals for a new rule to be included in the Disclosure Guidance and Transparency Rules sourcebook to implement the ESEF requirements of the Transparency Directive were published in the FCA's latest Quarterly Consultation.
The Bulletin sets out a high level overview of how ESEF works. In short, the new requirements will make it mandatory for certain issuers to produce their audited annual financial statements using the electronic format set out in a regulatory technical standard (RTS) of the European Commission. The RTS includes additional requirements for issuers who file audited, consolidated annual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). These issuers must mark-up or 'tag' certain disclosures in their financial statements using structured data formatting processes.
For accounting years beginning on or after 1 January 2020, issuers will be required to prepare their annual financial report (AFR) in the new electronic reporting format and in accordance with the provisions set out in the RTS. This means that all issuers will need to submit their AFR to the National Storage Mechanism in a different file format: the Extensible Hyertext Markup Language (XHTML) format. Those issuers who prepare consolidated annual financial statements in accordance with IFRS must tag certain disclosures in their financial statements using the inline Extensible Business Reporting Language capabilities (iXBRL) which the file format supports. To do that, issuers must use the taxonomy specified in the RTS.
There will be various options available to issuers transitioning to the production of their AFR in the iXBRL format. For example, some may integrate tagging into their existing internal process for producing AFRs. Others may outsource the work to a third party, such as a design agency.
The Bulletin also flags that the European Securities and Markets Authority (ESMA) has published guidance materials on its website to assist in preparing for ESEF.
Responses to the FCA's Quarterly Consultation must be submitted by 1 November 2019.
LSE launches "Green Economy Mark"
The London Stock Exchange (LSE) has launched a "Green Economy Mark" which recognises equity issuers on all segments of the main market and AIM with "green revenues" which derive from products and services that contribute to the global green economy of more than 50% of their total annual revenues. The underlying methodology incorporates the "Green Revenues data model" developed by FTSE Russell. The Green Economy Mark is offered to issuers on a voluntary basis.
The LSE has also launched the Sustainable Bond Market (SBM) which aims to build upon the success of its Green Bond Segment, launched in 2015. The SBM includes new dedicated segments for social and sustainability bonds, in addition to the existing Green Bond Segment. These new segments further enable investors to distinguish between different types of sustainable bonds, based on independently verified frameworks and use of proceeds.