Corporate law update: 6 - 12 November 2021

In this week’s update: Listed companies to be required to publish net zero transition plans, IPEV consults on revisions to its Valuation Guidelines, ISS consults on its 2022 voting policies, the International Sustainability Standards Board is established and the ONS publishes UK gender pay gap data for 2021.

• The Government is requiring listed companies to publish their plans for transitioning to a low-carbon economy
• IPEV is consulting on revisions to its Valuation Guidelines for private equity and venture capital investments
• ISS publishes its benchmark policy consultation for its 2022 voting policies
• The IFRS Foundation formally establishes the International Sustainability Standards Board
• The Office for National Statistics publishes UK-wide gender pay gap data for 2021

Listed companies to be required to publish net zero transition plans

The Government has confirmed that, as part of its plan for the UK to become the world's first Net Zero-aligned Financial Centre, it intends to require listed companies (among other organisations) to publish net zero transition plans.

Under the proposals, a listed company would be required to publish a transition plan setting out how it intends to adapt as the world transitions to a low-carbon economy. The plan would set out:

• high-level targets the company is using to mitigate climate risk, including greenhouse gas reduction targets (e.g. a net-zero commitment);
• interim milestones; and
• actionable steps the company plans to take to hit those targets.

The obligation would apply on a "comply or explain" basis. A company that fails to publish a transition plan would need to explain why it has not done so. Over time, the obligation would move away from a "comply or explain" basis and become a mandatory disclosure.

The Government acknowledges that there is currently no commonly agreed standard for a high-quality transition plan. It therefore intends to establish a Transition Plan Taskforce to develop a "gold standard" for transition plans. The Taskforce will work with the Financial Conduct Authority.

The new obligation would appear to sit alongside the new regime, details of which the Government published last week, requiring a wider range of business organisations to make mandatory climate-related financial disclosures broadly in line with the recommendations of the Financial Stability Board's Taskforce on Climate-related Financial Disclosures (TCFD). For more information on that regime, see our previous Corporate Law Update.

The Government has confirmed that it is not proposing to impose mandatory net-zero commitments, instead leaving listed companies and their shareholders to decide how to achieve this.

Finally, the Government has also confirmed that it is not proposing to prohibit investments in carbon-intensive activities. Rather, its aim is to increase transparency and accountability about actions listed companies are planning to take to align with the transition to net zero, leaving shareholders and the market to decide whether published plans are adequate or credible.

IPEV publishes review timeline for PE/VC valuation guidelines

The International Private Equity and Venture Capital Valuation Board (IPEV) has published the timeline for the next review of its Valuation Guidelines.

The IPEV Guidelines set out recommendations on valuing private capital investments. The Guidelines are intended to represent best practice where investments are reported at "fair value" and to help investors in private capital funds make better economic decisions.

IPEV updates the Guidelines periodically to incorporate changes to accounting standards and ensure they continue to reflect best practice when valuing investments. The Guidelines were last updated in 2018 as part of IPEV's triennial review.

IPEV is not planning on making significant changes to the Guidelines and so has issued a general call for feedback. Concepts that IPEV proposes to incorporate in the next version of the Guidelines include guidance provided during the Covid-19 pandemic and further guidance on valuing early-stage venture investments.

IPEV has asked for comments by 28 January 2022.

ISS publishes 2022 benchmark policy consultation

Institutional Shareholder Services (ISS) has launched its annual consultation on changes to its voting policies. The voting policies inform how ISS will recommend that individual shareholders vote in relation to key resolutions of publicly traded companies.

In relation specifically to the UK and Ireland, ISS is proposing the following.

• Board ethnic diversity. ISS is proposing to recommend voting against the nomination committee chair (or other directors on a case-by-case basis) of a FTSE 100 company if it has not appointed at least one director from an ethnic minority background.
  
  ISS also expects FTSE 250, FTSE SmallCap and larger AIM companies (in each case, excluding investment companies) to appoint at least one director from an ethnic minority background director by 2024.
• Board accountability on climate. ISS is proposing to recommend voting against (or withholding a vote in favour of) appointing a responsible director or members of a committee, or even the entire board, of a company with significant greenhouse gas emissions if the company is not taking the minimum steps needed to understand, assess, and mitigate risks related to climate change to the company and the larger economy.
• Non-financial ESG performance conditions. ISS is proposing to amend its policy on remuneration to include non-financial environmental, social and governance (ESG) conditions. In particular, it is proposing to clarify that ESG performance conditions may be used but should be material to the company's business and quantifiable.

In addition, in relation to all markets, ISS is proposing to introduce new policy recommendations in relation to say on climate proposals. ISS will consider say on climate proposals on a case-by-case basis and issue a voting recommendation in each case after assessing the proposal against specific criteria. For these purposes, ISS distinguishes between two types of proposal (each with their own set of assessment criteria):

• Say on climate management proposals. This is a proposal by management to ask shareholders to approve a company's climate transition plan.
• Say on climate shareholder proposals. This is a proposal by a company's shareholders to require the company to report on its greenhouse gas emissions and/or climate transition plan.

ISS' proposed position on say on climate votes contrasts with that of proxy advisor Glass Lewis, which intends to approach say on climate votes with caution and, pending a degree of standardisation, will generally recommend voting against proposals to provide shareholders with an annual say on climate.

Other items

• IFRS establishes International Sustainability Standards Board. The IFRS Foundation has announced that it has formally established the new International Sustainability Standards Board (ISSB). The ISSB's primary purpose will be to deliver a comprehensive global baseline of sustainability-related disclosure standards to provide investors and other capital market participants with information about companies' sustainability-related risks and opportunities.
• ONS publishes 2021 gender pay gap data. The Office for National Statistics (ONS) has published data on the overall gender pay gap within the UK as of April 2021 (the snapshot date by which individual organisations must publish their gender pay gap data). Among other things, the data show an overall pay gap of 7.9% in April 2021, compared with 7% in April 2020 and 9% in April 2019. The ONS notes that the gender pay gap is notably larger for employees aged 40 years or more and among higher earners. However, the pay gap among managers, directors and senior officials experienced the largest fall since April 2019 (before the onset of the pandemic).