FCA launches diversity disclosure consultation for listed companies

The FCA has launched a consultation that proposes to improve transparency for investors on the diversity of listed company boards and their executive management teams.  

The regulator is consulting on changes to its Listing Rule to require listed companies to annually publish:  

• A ‘comply or explain statement’ on whether they have achieved proposed targets for gender and ethnic minority representation on their boards. These targets state that at least 40% of the company’s board should be women, including those who self-identify as women, as well as at least one senior board position being occupied by a woman.  

• As part of the same annual disclosure obligation, companies should provide data on the make up of their board and most senior level of executive management in terms of gender and ethnicity.   

Speaking about the proposals, the FCA’s director of market oversight Clare Cole said: “Over time, we expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity in their pipeline of talent.  

“This may have broader benefits in terms of the quality of corporate governance and company performance in due course.” 

The consultation will last for 12 weeks, closing on 22 October 2021.  

Subject to the consultation’s feedback and FCA board approval, the regulator will seek to implement relevant rules by late 2021. 

These changes follow a recent paper by regulators - including the FCA, PRA and the Bank of England - that explored how to promote diversity and inclusion across the financial services sector.  

Lack of mandatory transparency  

The FCA’s proposals aim to build on progress achieved under its existing initiatives to improve diversity on the boards of the largest UK companies.  

The regulator is also proposing changes to its disclosure and transparency rules, to require companies to ensure that any existing disclosure on diversity policies addresses key board committees and considers broader aspects of diversity, such as ethnicity, sexual orientation, disability and those with lower socio-economic backgrounds.

The FCA is encouraging companies to provide further data on the results of diversity policies that consider these wider aspects.  

Cole continued: “There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350, [which] do not provide data to the voluntary initiatives in this area. 

”But, interest from investors is growing and companies are increasingly focusing on this topic due to [environmental, social and governance] investing, as well as wider social and public policy concerns. 

“Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees.  

“This will provide better data for companies and investors to assess progress in these areas and make investment decisions, reduce investor search costs and inform shareholder engagement, enhancing market integrity.” 

Positive benchmark 

Although the Listing Rule diversity targets are not mandatory for companies to meet and the FCA is not setting quotas, the targets strive to provide a positive benchmark for issuers to report against.  

The proposals would apply to UK and overseas companies with equity shares in either the premium or standard listing segments of the FCA’s Official List.  

The suggested disclosure and transparency changes will apply to companies with securities traded on UK regulated markets, such as the London Stock Exchange. 

The FCA’s measures plan to help ensure reporting and consistency beyond the largest listed companies.