Company board’s ESG responsibilities are being addressed in the Financial Reporting Council (FRC)’s public consultation into the UK corporate governance code.
The FRC announced it has launched the consultation in response to the UK government white paper Restoring Trust in Audit and Corporate Governance, which flagged potential areas for reform with a focus on directors’ responsibilities for internal control, risk, audit and corporate reporting.
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Other areas of focus include making necessary revisions to reflect the responsibilities of the board and audit committee for sustainability and ESG reporting.
The consultation will also look at revising parts of the code that deal with the need for a framework of “prudent and effective controls to provide a stronger basis for reporting on and evidencing their effectiveness”.
It will also assess improving the functioning of comply-or-explain where reporting is currently weaker, taking account of recently published FRC research and reports, and ensuring the code aligns with changes to legal and regulatory requirements including strengthening reporting on malus and clawback arrangements.
Sir Jon Thompson, CEO of the FRC, said: “Good corporate governance contributes to long-term company performance by helping to build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability, and business integrity. Enhancing the corporate governance code will meet the needs of all corporate stakeholders, including investors, employees and suppliers, and boost the resilience of the UK economy, ensuring it continues to attract talent and investment.
“We look forward to receiving feedback from stakeholders and using this feedback to continue restoring trust in audit and corporate governance.”
The FRC invites stakeholders to send comments to codereview@frc.org.uk by Wednesday 13 September 2023.
Caroline Escott, senior investment manager at pension service provider Railpen, said it was pleased to see the consultation’s focus on raising standards on audit, risk and internal controls.
“Investors need to be able to trust that the financial accounts represent a true and fair view of a company’s financial health, and that a high-quality audit has taken place.,” she said.
“The code plays an important role in supporting the high corporate governance standards that have helped cement the UK’s role as a global financial powerhouse, but it is only one part of the story. Investors need the rights and protections to be able to hold companies to account where they fail to either comply with, or meaningfully explain departures from, the Code. This consultation, which rightly notes the importance of good corporate governance to creating sustainable value and stable capital markets, has landed at a time when others are calling for vital investor protections – such as equal voting rights – to be rolled back.”
