The Investment Association (IA) has published a document discussing Listed company shareholder priorities for 2020. It focuses on four areas that IA members consider to be key drivers to long-term value. It also discusses the approach that IVIS, the IA’s corporate governance research service, will take in these areas when highlighting issues relevant to shareholders exercising their votes.
The four areas of focus are:
- Climate change – The IA says that investors are looking for significant progress from listed companies in implementing the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations (see our corporate update 2017/14). IVIS will introduce a new section to its ESG report (on environmental, social and governance issues), highlighting to investors whether a company has made climate change-related disclosures.
- Audit quality – The document notes that the quality and robustness of the audit is essential for investors but that, in practice, audit committee disclosures are often generic. The IA says that audit committee reports need to properly disclose where challenges have been raised, how professional scepticism has been applied and how a quality audit has been delivered. IVIS will revise its questions to encourage better disclosures around audit.
- Stakeholder engagement and employee voice – The IA says that investors are keen to better understand how directors are fulfilling their duties and taking account of the views of the company’s material stakeholders. IVIS will introduce two new questions to ascertain whether the board has identified a company’s material stakeholders and its engagement with them, and which of the four options for workforce engagement outlined in the Corporate Governance Code a company has adopted.
- Diversity – The IA notes the progress that has been made in relation to gender diversity on boards in light of the Hampton-Alexander Review. It also notes that investors expect companies to place greater emphasis on ethnic diversity, in particular in light of the Parker Review (see item 1 above). The IA says that IVIS will red top any FTSE 350 company where:
- women represent 20% or less of the board;
- there is one or less women on the board (unless the one third target is achieved i.e. a board of three directors); or
- women represent 20% or less of the Executive Committees and their direct reports.
For FTSE Small Cap companies, IVIS will amber top any company where women represent 25% or less of the Board; there is one or less women on the Board (unless the one third target is achieved); or women represent 25% or less of the Executive Committees and their direct reports.