Corporate Law Update

• The Investment Association publishes its shareholder priorities for 2021
• The Investment Association and the PLSA launch a new stewardship steering group
• The Government announces reforms to the Prompt Payment Code to assist small businesses
• The House of Commons Library publishes a briefing on the National Security and Investment Bill

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Investment Association publishes shareholder priorities for 2021

The Investment Association (IA) has published a paper outlining its shareholder priorities for listed companies during 2021.

The paper builds on the IA’s previous shareholder priorities paper for 2020, which outlined four critical drivers of long-term value for investors: climate change, audit quality, stakeholder engagement and diversity. It sets out how companies have made progress in these areas, investors’ expectations for the forthcoming year, and how the IA’s research arm, IVIS, will approach these issues.

Key points arising out of the paper include the following:

• Climate change. The IA expects all listed companies to report in line with the Taskforce on Climate-related Financial Disclosures’ Final Recommendations (the TCFD Recommendations), noting that this is now mandatory for premium-listed commercial companies for financial years beginning on or after 1 January 2021.
  
  IVIS will amber-top any company in a “high-risk sector” that does not respond to all four pillars set out by the TCFD, namely: governance, risk management, strategy, and metrics and targets. The paper lists the high-risk sectors as Financials, Energy, Transportation, Materials and Buildings, and Agriculture, Food and Forest Products (which are further broken down by sub-sector), as well as Airlines, and Travel and Tourism.
  
  The paper also sets out the IA’s expectations for taking climate change into account in a company’s financial statements, noting that directors should affirm that the financial impact of climate-related matters have been incorporated into the company’s accounts.

• Audit quality. IVIS will continue to ask whether audit committees have demonstrated their assessment of the quality of their company’s audit and how they have challenged management’s judgements. The IA will continue to work with companies and audit committees to communicate expectations and showcase effective case studies. If there is no progress in 2021, IVIS proposes to introduce a colour-top approach in 2022.
• Stakeholder engagement. The IA’s approach has not changed significantly since 2020. It expects companies to continue to make quality disclosures outlining their approach to engaging, communicating and supporting the company’s stakeholders during the disruption caused by the Covid-19 pandemic. IVIS will continue to highlight where in their reports companies have made Covid-19-related disclosures.
• Ethnic diversity. The IA expects companies to make significant progress to improve ethnic diversity within their boards, including by taking actions to reach the Parker Review target of ‘one by 21’. IVIS will amber-top any FTSE 350 company that does not disclose the ethnic diversity of its board or a credible action plan to achieve the Parker Review targets.
• Gender diversity. IVIS will red-top any FTSE 350 company and amber-top any FTSE SmallCap company whose female board representation is 30% or less. Similarly, it will red-top any FTSE 350 company and amber-top any FTSE SmallCap company with a female representation of 25% or less in its executive committee and that committee’s direct reports.

Also this week…

• Investment Association launches stewardship steering group. The Investment Association has announced that it and the Pension and Lifetime Savings Association (PLSA) have jointly launched a new steering group to examine how better to integrate stewardship and a focus on long-term investment into the investment process. The steering group brings together asset owners, investment managers and other relevant stakeholders. Its work will focus on steps investment managers can take to deliver their clients’ stewardship priorities and the role of asset owners in embedding stewardship within manager selection, ongoing performance and oversight assessment.
• Government announces reforms to Prompt Payment Code. The Government has announced that it intends to reform and strengthen the Prompt Payment Code (PPC) to encourage large companies to pay smaller suppliers in time. The PPC is voluntary. To date, almost 3,000 companies have signed up to it. The Government intends to ask finance directors and CEOs to take personal responsibility by signing the Code.
• House of Commons Library publishes briefing on national security bill. The House of Commons Library has published an updated briefing on the National Security and Investment Bill in advance of its third reading in the House of Commons. The paper provides an explanation of the current regime and the purpose of the proposed reforms and notes that there is generally cross-party support for the Bill.