UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
Executive compensation, and in particular pay gaps between executive and employee pay, is another major focus area for shareholders and other stakeholders (see 4.10 Approvals and Restrictions Concerning Payments to Direc- tors/Officers and 4.11 Disclosure of Payments to Directors/Officers ). 2.2 ESG Considerations Environmental, social and governance (ESG) issues remain an area of significant focus for regulators, investors and other stakeholders in the UK. Listed companies are required to include a state - ment in their annual financial report which sets out whether the report contains disclosures consistent with the recommendations and rec - ommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD) and to explain why, if they do not. Separately, the Companies Act places requirements on cer - tain publicly quoted companies and large private companies to incorporate TCFD-aligned climate disclosures in the non-financial and sustainabil - ity information statement which forms part of the strategic report in their annual report and accounts (see 6.1 Financial Reporting for more information on the strategic report). As noted above, the ISSB issued two SDSs in the summer of 2023, and the UK govern - ment is expected to endorse these to create UK SDSs during the first half of 2025. The FCA will then consider the application of UK SDSs and the TPT’s framework to companies listed in the UK. For listed companies, the new ISSB- based regime is expected to apply in place of the TCFD-based regime and it is anticipated that disclosure of transition plans will become mandatory.
These climate-related disclosures supplement the existing requirements for certain listed com - panies to include prescribed non-financial infor - mation, including on environmental, workforce and social matters and respect for human rights, in their annual report (see 6.1 Financial Report- ing for more information). Companies subject to the Governance Code or the Wates Principles are also required to report on certain non-financial aspects of their busi - ness and stakeholders. There are a number of other reporting require - ments for companies relating to ESG issues. Companies that meet certain thresholds must publish statements explaining: • how their directors have performed their duty under Section 172 of the Companies Act to have regard to the various stakeholder factors listed in Section 172 (1) (including employees, customers and suppliers, the community and environment); • how their directors have engaged with employees and had regard to UK employee interests, and the effect of that regard, includ - ing on the principal decisions taken by the company; and • how their directors have had regard to the need to foster the company’s business rela - tionships with suppliers, customers and oth - ers, and the effect of that regard, including on the principal decisions taken by the company. For a number of years, commercial organisa - tions operating in the UK that meet certain size requirements have been required under the Modern Slavery Act 2015 to publish a state - ment discussing the steps they have taken to ensure that slavery and human trafficking is not taking place in their business or supply chain.
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