Thank you for your interest in our updates on the latest regulatory developments. There are a number of issues of interest this month. Do, please, feel free to bring these to the attention of colleagues for whom they might also be relevant.
Peter Swabey FCG,
Policy & Research Director
1 Economic Crime and Corporate Transparency Act 2023: Companies House reforms
Of interest to all responsible for corporate filings
On 26 March, Companies House published a new blog “Our new powers to challenge and change company names”. Companies House is running stronger checks on company names which may give a false or misleading impression to the public. Find out how this may affect you or your company.
There was also a good article from Humphreys Law looking at some of the changes.
2 ESG Summit – 2 May 2024
PROFESSIONAL DEVELOPMENT FOR MEMBERS
Of interest to all responsible for supporting their boards on ESG issues
I’ve been working through the programme for the ESG Summit on 2 May with our Events team - a must attend event for all those responsible for supporting their boards on ESG issues. I’m looking forward to attending the sessions that we have curated and would encourage you to book or send a colleague with an ESG role.
We have a keynote address from Catherine Howarth OBE, CEO of ShareAction and a variety of sessions from both practicing company secretaries and other subject matter experts. We will also be launching our own thought leadership paper on the role of a board level sustainability committee to follow on from the specimen terms of reference that we published in January. Book tickets on the CGI website.
3 Department for Business & Trade’s review of non-financial reporting
Of interest to those involved in reporting arrangements
Following the Department for Business & Trade’s call for evidence about non-financial reporting in spring and summer 2023, the government has published a ministerial statement and summary of responses.
Key next steps include:
- The government intends to introduce legislation in summer 2024 to raise the monetary threshold used for the classification of companies as large, medium or small by 50%. This will lead to a reclassification of a significant number of companies and a resultant change in their reporting obligations.
- It will also consult on proposals to increase the number of employees that makes a company ‘medium’ from 250 to 500 and to exempt medium companies from the requirement to produce a strategic report.
- The legislation will remove certain disclosures currently required in the Directors’ Report and the Directors’ Remuneration Report.
The FRC has welcomed the government’s plans to legislate. For those who like to read the source documents, here are links to the original call for evidence, and CGIUKI’s response.
4 FRC market review of sustainability assurance services
REQUEST FOR SUPPORT FROM MEMBERS
Of interest to those involved in reporting arrangements and assurance
The Financial Reporting Council (FRC) has announced the launch of its first market study to examine the UK market for sustainability assurance services. The study aims to ensure this rapidly growing market is functioning effectively and providing high-quality assurance of companies' sustainability reporting.
CGIUKI will be responding to the FRC’s invitation to comment. If you would like to share your comments, please contact Emily Ford at [email protected]. Any time spent doing so will count towards CPD targets.
5 Guidance notes working group
REQUEST FOR SUPPORT FROM MEMBERS
Of interest to all members
We have something of the order of 150 guidance notes on our website and we maintain a programme of updating these. To help us do this more effectively, we have decided to form a working group of members. If you are interested and able to help, please let us know at [email protected] giving an outline of your areas of interest.
6 EU’s Corporate Sustainability Due Diligence Directive
Of interest to companies with operations in the EU
The Council of the European Union approved an amended version of the Corporate Sustainability Due Diligence Directive (CS3D) on 15 March.
Significant concessions were made to secure support from the required majority of EU Member States, and these have faced criticism. The EU Parliament is expected to approve the amended text in its final plenary sitting in April.
Changes made to the text include adjusting the thresholds to decrease the number of EU and non-EU companies which fall into the scope of the Directive. The requirements about transition plans and downstream value chains have been adjusted, and the dates of application have been extended.
Here is the full text of the amended CS3D. There are write ups from Linklaters, Simmons & Simmons, Baker McKenzie and many more.
7 New Department for Education Governance Guides
Of interest to those working in education governance
At the beginning of March, the Department for Education (DfE) published two new governance guides, one for Maintained Schools and one for Academy Trusts. These guides replace the previous Governance Handbook, as well as the competency framework (both of which have been archived). The DfE’s list of statutory policies has also been incorporated into the guides, with the intention of reducing workloads for boards.
These guides do not contain any new governance expectations, and are based on the same familiar principles of governance. Compared to the previous Handbook, they are more streamlined and accessible, and separate out governance implications for the academy trusts and maintained schools contexts.
For maintained schools, the guide adds a section on actions from the chair, and clarifies the board’s responsibilities for estate management. For academy trusts, the guide is now structured around DfE’s trust quality descriptions and its definition of the purpose of trust governance. This is to provide: strategic leadership, accountability and assurance and strategic engagement. Elsewhere in the guide, local governing bodies have been rebranded as local committees, and there is more guidance on appraisals for governance professionals.
DfE consulted with several stakeholders during the development of these guides, including with the Institute. Please do feel free to share any feedback about their accessibility, user-friendliness and clarity with us, and we are happy to pass this on to DfE.
8 Charities Act 2022 and updated guidance from the Charity Commission
Of interest to those working in charities
The latest tranche of changes under the Charities Act 2022 came into force on 7 March. These include:
- Making changes to a charity’s governing documents: a new statutory power which trusts and unincorporated associations can use to make changes to their governing documents with permission from the Charity Commission.
- Selling, leasing and disposing of charity land: provisions relating to liquidators and administrators which were due to come into force on 14 June 2023 but did not are now in force.
- Charity mergers: new rules are now in force that will allow most gifts to charities that merge to take effect as gifts to the charity they have merged with.
A full list of changes under the Charities Act, with timelines, is available.
As a result, the Charity Commission has updated several pieces of guidance, including:
Charity structures and governing documents
- How to make changes to your charity's governing document (CC36)
- Change your charity structure
- Royal Charter charities
Mergers and collaboration
- Collaborative working and mergers: an introduction (CC34)
- How to merge charities
- Work with other charities
- How to link charities
- How to transfer charity assets to another charity
Trustees
Charity Commission
- Statutory inquiries into charities: guidance for charities (CC46)
- Dissatisfied with one of the Charity Commission’s decisions: how can we help you?
Funds and donations
- Accepting, refusing and returning donations to your charity
- Permanent endowment: rules for charities
Other
- Sales, leases, transfers or mortgages: what trustees need to know about disposing of charity land (CC28)
- Environmental responsibility for charities
- How to close a charity
9 Future regulatory regime for ESG ratings providers
Of interest to those involved in investor and proxy engagement
The government has confirmed that it will regulate the provision of ESG ratings after its consultation in Spring and Summer 2023. The intent to regulate was announced in the Spring Budget, and specific legislative steps will follow later this year. You can find the Institute’s response to the HM Treasury consultation here. We will be monitoring the legislative outcome.
10 New legal opinions on directors’ duties: True and fair accounts and Nature-related risks
Of interest to all involved in directors’ duties, induction and training
Two new expert legal opinions have implications for directors’ duties: the first for financial reporting, and the second for considering impacts and dependencies on biodiversity.
Directors have a duty to present a ‘true and fair’ view of a company’s financial position in its accounts under S393 of the Companies Act. A new legal opinion states that directors ought to consider whether and how to reflect sustainability issues, such as the company’s contribution to climate change, in their financial statements. Accordingly, directors have a ‘positive duty’ to consider if sustainability issues have consequences for their accounts, for example by creating liabilities or impairing asset values, and to include this information where it is relevant to users. The opinion was issued by KC George Bompas and commissioned by Social Value International, and is expected to empower businesses and particularly SMEs to include sustainability issues in their reporting.
In light of duties under S172 and S174, a second opinion states that directors would be prudent to identify, evaluate, mitigate and disclose nature-related risks. It points out that nature-related risks can cause harm to a company’s short and long-term financial health, and therefore are relevant to directors’ duties to promote the success of the company. It also specifically highlights the importance of fully documenting directors’ considerations of, and decisions about, nature and biodiversity risks, to avoid the risk of liability under S174: the duty to exercise reasonable care, skill and diligence. The full opinion was prepared by a team led by Sharif A. Shivji KC and Rebecca Stubbs KC and commissioned by Pollination Law and the Commonwealth Climate & Law Initiative.
11 Further reading
And finally, some articles that passed across my desk and struck me as being of interest to members:
AGMs and annual reports – premium listed companies: a briefing on the 2024 AGM and reporting season from Travers Smith.
Financial Conduct Authority 2024/25 business plan: a helpful analysis from Hogan Lovells.
Gender diversity in AIM listed companies: an interesting report from Indigo Governance and Addidat on gender diversity in AIM listed companies, which “provides a breakdown of some key statistics about women on AIM boards as well as personal insights from female directors from the AIM community. Whilst some progress has been made since last year, it is disappointing to note the lethargic pace of change.”
On the subject of further reading, it would be remiss of me not to mention the CGIUKI blogs published in March:
6 March - Chancellors Spring Budget Announcement 2024
7 March - Voices in Governance - Women supporting Women: International Women’s Day 2024
12 March - ESG factors that matter: A guide for governance professionals
15 March - Case Study - Kyle Burke ACG
26 March - Understanding the changing ESG regulatory landscape
