Publication
UK Carbon Border Adjustment Mechanism: how will it work?
In February, we reported on the Department of Energy Security and Net Zero’s confirmation that a UK Carbon Border Adjustment Mechanism (CBAM) would be bought into force by 2027
Global | Publication | November 4, 2016
Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On October 31, 2016 The Investment Association (IA) published its Principles of Remuneration (the Principles) for 2016 and an accompanying introductory letter which outlines the key changes to the Principles since the most recent edition published in July 2016. These changes reflect the IA’s response to the Executive Remuneration Working Group Final Report which was published in July and highlights some issues IA will be focusing on ahead of the 2017 AGM season.
2016 Review of the Principles of Remuneration
The main changes made to the Principles are:
Issues to consider for 2017 AGMs
In particular, members of the IA have asked for the following aspects of the Principles to be re-emphasised:
(Investment Association, The Investment Association Principles of Remuneration, 31.10.16)
On November 2, 2016 the Parker Review Committee published a consultation version of a report into the ethnic diversity of UK boards. The Report highlights that ethnic minority representation in the Boardrooms across the FTSE 100 is disproportionately low, especially when looking at the number of UK citizen directors of colour and makes recommendations for increasing diversity, underpinned by strong industrial logic and the need for UK companies to be competitive in the increasingly challenging and diverse marketplace.
The recommendations of the Report are as follows:
Increase the Ethnic Diversity of UK Boards
Develop Candidates for the Pipeline & Plan for Succession
Enhance Transparency & Disclosure
The appendices to the report contain a set of questions for directors and a resource toolkit which were developed to help boards deliver on the report's recommendations. The questions have been drafted to be consistent with the key considerations that directors need to make in the satisfaction of their statutory duties under the Companies Act 2006 and in a manner that is consistent with the UK Corporate Governance Code.
Comments on the consultation version of the Report are requested by February 28, 2017.
(The Parker Review Committee, A Report into the Ethnic Diversity of UK Boards, 02.11.16)
On October 27, 2016 Institutional Shareholder Services Inc. (ISS) announced the launch of its 2017 benchmark voting policy consultation period. ISS is consulting on changes to its policy on executive remuneration, its policy on audit and remuneration committee composition, and its policies on European pay for performance methodology.
Policy on Executive Remuneration
ISS is consulting on changes to the ISS UK & Ireland policy to clarify that when forming a view on new remuneration arrangements, ISS will pay particular attention to the following points:
Furthermore, ISS is considering recommending a vote against the re-election of the chair of the remuneration committee (or, where relevant, another member of the remuneration committee) in cases where a serious breach of good practice is identified, and typically where issues have been raised over a number of years.
ISS also requests comment on whether, if serious concerns have been raised with pay practices over a number of years but the remuneration committee chair position is being rotated, respondents support the view that the longest serving member of the Remuneration Committee should be held accountable.
Policy on Audit and Remuneration Committee Composition for smaller companies
The change under consideration is that ISS' voting guidelines for audit and remuneration committee composition at AIM companies should reflect the Quoted Companies Alliance (QCA) position, namely that these committees should comprise independent non-executive directors only. ISS is consulting on recommending voting against non-independent non-executives being members of such committees.
Policies on European Pay for Performance Methodology
ISS is proposing to formalise the existing process on assessing pay performance by including a formal reference to the European pay-for-performance methodology in the UK/Ireland (UKI) and Continental European voting guidelines. The reference to the methodology will be as part of the current policy principles. The envisaged change would furthermore include the definition of the methodology, which reads as follows:
"ISS annually conducts a pay-for-performance analysis to measure the alignment between pay and performance over a sustained period. With respect to companies in the European Main Indices, this analysis considers the following:
Peer Group Alignment:
Absolute Alignment – the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualised TSR during the period."
The ISS requests comments by November 10, 2016 and plans to publish its final 2017 policies in the week of November 14, 2016. The revised policies will be applied to shareholder meetings taking place on or after February 1, 2017.
(ISS, UK & Ireland Policy – Executive Remuneration, 27.10.16)
(ISS, Europe, U.K. & Ireland Policies - European Pay for Performance Methodology, 27.10.16)
On October 31, 2016 the Financial Reporting Council (FRC) published a corporate reporting thematic review on tax disclosures. This report shares the FRC’s findings from the targeted review of certain aspects of companies’ tax reporting, against which companies can assess and enhance their own disclosures to ensure they provide high quality information to investors in their annual reports and accounts.
In December 2015, the FRC wrote to 33 FTSE 350 companies informing them that the tax disclosures in their next annual report and accounts would be reviewed by the FRC’s Corporate Reporting Review (CRR) on behalf of the FRC’s Conduct Committee. The objective of the review was to encourage more transparent reporting of the relationship between tax charges and accounting profit and the factors that could affect that relationship in the future, in accordance with existing requirements.
Overall, the FRC evidenced improvements in the transparency of tax disclosures included in companies’ strategic reports and saw examples of good practice in the following areas:
The FRC did note that there is scope for companies to articulate better how they account for tax uncertainties by explaining the bases for recognition and measurement and will continue to challenge companies who do not disclose the amount of uncertain tax provisions when these are subject to risk of material change in the following year. The audit of uncertain tax provisions is an area of particular focus of the FRC’s audit monitoring activities for 2016/2017.
Additionally, the FRC encourages companies to:
(FRC, Corporate Reporting Thematic Review: Tax Disclosures, 31.10.16)
On October 27, 2016 the Financial Reporting Lab published a lab project report on business model reporting, which is the first in a series of projects announced in July 2015.
Findings in the report include:
(Financial Reporting Lab, Lab project report: Business model reporting, 28.10.16)
On October 28, 2016 the City of London Law Society (CLLS) and Law Society Company Law Committees' Joint Working Parties on Market Abuse, Share Plans and Takeovers Code published an updated version of its Q&A on the Market Abuse Regulation (MAR), which combines the Q&A published in July and August.
The answer regarding what exchange rate should be used for calculating the EUR 5,000 threshold in Article 19(8) of MAR has been updated to reflect the position in European Securities and Markets Authority’s (ESMA) Q&A on MAR, which states that, for transactions carried out under Article 19(1) MAR in a currency which is not the Euro, the exchange rate to be used to determine if the threshold set in Article 19(8) MAR is reached is the official daily spot foreign exchange rate which is applicable at the end of the business day when the transaction is conducted. Where available, the daily euro foreign exchange reference rate published by the European Central Bank on its website should be used.
On October 29, 2016 Commission Implementing Decision (EU) 2016/1910 of 28 October 2016 on the equivalence of the reporting requirements of certain third countries on payments to governments to the requirements of Chapter 10 of the Accounting Directive (Directive 2013/34/EU) was published in the Official Journal.
Chapter 10 requires large undertakings and all public-interest entities active in the extractive industry or the logging of primary forests to prepare and make public a report on payments made to governments on an annual basis. EU companies may choose to prepare their reports in compliance with the reporting requirements of a third country that have been assessed in accordance with Article 47 as equivalent to the requirements of Chapter 10.
This Commission Implementing Decision provides that, since adopting reporting requirements on payments to governments that deliver substantive outcomes equivalent to the provisions contained in Chapter 10, the reporting requirements of Canada should be considered as equivalent to requirements of Chapter 10 of the Accounting Directive on payments to governments regarding their activities in the extractive industry.
Publication
In February, we reported on the Department of Energy Security and Net Zero’s confirmation that a UK Carbon Border Adjustment Mechanism (CBAM) would be bought into force by 2027
Publication
International financial markets have started to show significant interest in nature and biodiversity. Whilst climate change and greenhouse gas emissions have made the headlines in recent years, there has been much less focus on their equally important counterparts, nature and biodiversity. However, that has started to change.
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