The FCA tightens up diversity-related disclosures

The Financial Conduct Authority (FCA) has published a statement finalising the changes to diversity-related disclosures for premium and listed companies.

The new listing requires all premium and listed companies to disclose on a ‘comply or explain’ basis targets that:

  • At least 40% of the board are women
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID) or Chief Financial Officer (CFO)) is a woman
  • At least one member of the board is from a non-white ethnic minority background (as referenced in the categories recommended by the Office for National Statistics (ONS)).

If the company does not meet the targets, it should explain why. This provides some flexibility to smaller firms or those based overseas. The rules also allow companies to decide how best to collect data from employees to show they are meeting the targets, to give companies the ability to protect sensitive data and privacy.

The changes will enable investors to compare information easily between companies, thus enhancing market integrity and allowing markets to be more aligned with the FCA’s objectives.

The rules will apply to listed companies for financial accounting periods starting from 1 April 2022. The FCA will review the rules in three years’ time to make sure they are working and to check if the diversity targets are still appropriate.

The rules also expand the reporting requirements for companies to cover broader governance on diversity. Companies will need to disclose the diversity policies of key board committees, including audit, remuneration and nominations committees.

These changes to the disclosure requirements will lead to more robust diversity reporting and catalyse change in organisations that have work to do to improve their diversity performance. We can expect to see more changes like this as an increasing number of investors are placing more importance on the ‘people’ side of sustainability and understand that diverse companies outperform less diverse peers on profitability[1].

If you would like help aligning to the disclosures, or would like help improving your diversity strategy, please get in touch: anokhi.kalayil@luminous.co.uk

 

[1] https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters