Diversity and inclusion targets

The Financial Conduct Authority (FCA) has published its final policy decision on the proposal set out in CP 21/24 – ‘Diversity and inclusion on company boards and executive committees’. These measures are designed to improve transparency on the diversity of company boards and their executive management for investors and other market participants.

Requirements of issuers (note this would be voluntary reporting for Pay.UK):

• To include a statement in their annual financial report setting out whether they have met specific board diversity targets on a ‘comply or explain’ basis, as at a chosen reference date within their accounting period and, if they have not met the targets, why not. The targets are:

• At least 40% of the board are women.
• At least one of the senior board positions – Chair, CEO, Senior Independent Director or CFO is a woman.
• At least one member of the board is from a minority ethnic background (which is defined by reference to categories recommended by the ONS).

• Issuers will also have to set out in their statement:
  • The reference date used, and where this is different from the reference date used in respect of the previous accounting period, an explanation of why, and
  • Any changes to the Board that have occurred between the reference date and the date on which the annual financial report is approved that have affected the company’s ability to meet one or more of the targets.

• To publish numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions (Chair, CEO, SID and CFO) and executive management in a table. Data is to be reported in a standardised table format (as at the reference date selected for the purposes of the comply-or-explain disclosure) which is included at Annex 2.
• Issuers are also required to explain their approach to collecting the data.

• In-scope companies may, in addition to the disclosure requirements described above, wish to include the following in its annual financial report to provide further context:
  • A brief summary of any key policies, procedures and processes, and any wider context that it considers contributes to improving the diversity of its board and executive management.
  • Any mitigating factors or circumstances which make achieving diversity on its board more challenging (for example, the size of the board or the country where its main operations are located)
  • Any risks it foresees in being able to meet or continue to meet the board diversity targets in the next accounting period, or any plans to improve the diversity of its board.

• To disclose in their corporate governance statement the diversity policy applied to their board, or to explain where no such diversity policy is applied. These changes are to expand the reporting requirements to cover the diversity policies of key board committees and to indicate that reporting on board and board committee diversity policies could consider wider diversity characteristics.