The Financial Reporting Council (FRC) is taking its next steps towards strengthening corporate governance among UK companies, pushing for behavioural change and expanded ESG reporting.
It has published a paper today following the government’s response to its previous consultation on reforming the UK’s audit and corporate governance framework.
The proposals include the creation of a new regulator, the Audit, Reporting and Governance Authority (ARGA) to replace the FRC.
The new report outlines in more detail how the FRC will deliver these reforms, including revising existing codes, strengthening auditing and accounting standards and setting expectations to drive behavioural change.
It intends to create a stronger framework for expanded sustainability and ESG reporting, and new guidance on enhanced resilience statements and fraud reporting by directors.
ESG Clarity is also pushing for higher standards of corporate governance through our Campaign for Better Governance, calling on investment firms to set the example for other businesses to follow.
The FRC’s CEO, Sir Jon Thompson, said the FRC’s reforms will uphold corporate governance standards among UK businesses.
“These long-awaited reforms are a once-in-a-generation opportunity to ensure corporate Britain upholds the highest standards of governance and protects those stakeholders who rely on high-quality reporting.
“While we await government legislation, the FRC is pressing ahead with those changes to standards and codes which will improve and enhance the UK’s audit and corporate governance framework and to lay the groundwork for the creation of ARGA.”
The Association of Investment Companies (AIC) has supported the corporate governance reforms with Guy Rainbird, public affairs director, saying: “The FRC’s paper contains many important proposals from updating the UK Corporate Governance Code to developing guidance for audit committees on audit tendering.
“The FRC’s ambition to simplify and improve reports and accounts is especially welcome. Annual reports are the cornerstone of company reporting. Making these clearer, with information valued by shareholders, will help to build shareholders’ trust in auditing and corporate governance, thereby maintaining the integrity of markets.”
Pushing stewardship up the agenda
Meanwhile, the FRC has released separate research showing the positive impact a revised UK Stewardship Code has had on practice and reporting by asset managers.
In a report that took evidence from 55 asset managers and owners, it found “strong evidence of material changes” to practice within governance, resourcing, stewardship activities, outcomes and reporting.
The asset managers it sampled had all undertaken some organisational restructuring to prioritise stewardship and better integrate it into their investment decision-making, and most had increased the size of their stewardship teams.
Groups reported better engagement because of the new Code, and celebrated its contribution to industry-wide change, the FRC said.
The FRC has been responsible for the UK Stewardship Code since December 2009. It was substantially revised in 2019 to include a wider definition of stewardship, applying to a range of asset classes and with a greater focus on stewardship activities and the outcomes of those activities.
“Investors have a vital role to play ensuring our major companies are run responsibly and deliver long-term value,” said business minister Lord Callanan.
“I’m pleased to see that the revised Stewardship Code is already having a material positive impact to that end, increasing engagement between investors and companies, while improving the oversight of big business to the benefit of the wider economy.”
