Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a five-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue:
Government withdraws draft Companies (Strategic Report and Directors' Report) (Amendment) Regulations 2023
On 16 October 2023, the Department for Business and Trade announced its withdrawal of the draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023. These Regulations would have created new reporting requirements (for large UK listed and private companies) including an annual resilience statement, distributable profits figure, material fraud statement and triennial audit and assurance policy statement.
The withdrawal of the Regulations was welcomed by a range of stakeholders as the additional reporting requirements were seen to have impacted the effectiveness of listed companies and the standing of the UK over other capital markets.
The government will instead present new options for a reform package that aims to deliver a more targeted, simpler and effective non-financial reporting framework. Nonetheless, the government re-affirmed its commitment to wider audit and corporate governance reform, including the establishment of the audit, reporting and governance authority to replace the Financial Reporting Council.
The withdrawal will impact certain proposed changes to the UK Corporate Governance Code as they were predicated on the basis of these Regulations coming into effect.
Call for Evidence published on Scope 3 emissions reporting
On 19 October 2023, the Department for Energy Security and Net Zero published “Call for Evidence: Scope 3 emissions reporting”, which seeks views on:
- the costs, benefits and practicalities of Scope 3 greenhouse gas emissions reporting; and
- the current Streamlined Energy and Carbon Reporting (“SECR”) framework.
Responses to the call for evidence will help inform the government's decision on whether to adopt IFRS S1 and IFRS S2, the International Sustainability Standards Board (“ISSB”)’s first two standards (which would require reporting on Scope 3 emissions) to create UK Sustainability Disclosure Standards and to inform a post-implementation review of the SECR framework.
The call for evidence closes on 14 December 2023.
EU Foreign Subsidies Regulation mandatory notification commences
The mandatory notification requirement under the EU Foreign Subsidies Regulation (EU) No. 2022/2560 commenced on 12 October 2023. Any notifiable deal will not be able to proceed unless cleared by the European Commission.
The Regulation entered into force on 12 January 2023 and started to apply from 12 July 2023. Among other things, the Regulation establishes a mandatory prior notification and authorisation regime for notifiable deals involving parties that have received “financial contributions” from non-EU states. Despite the term “financial subsidies” in the name of the Regulation, “financial contributions” is defined widely and may include any sale and purchase of goods and services with a non-EU public body or state-owned entity. Although the mandatory notification requirement only commenced on 12 October 2023, any in-scope deal which signs after 12 July 2023 and which did not complete before 12 October 2023 has to be notified.
Transactions meeting the following thresholds are notifiable:
- turnover of the target (for acquisitions), the JVCo (for creation of a JV), or one of the parties (for a merger) in the EU was at least €500m in the last year; and
- the undertakings concerned received, from non-EU governments or State-owned entities, “financial contributions” of more than €50 million in the previous three years.
TCFD 2023 Status Report and FSB 2023 Annual Progress Report published
On 12 October 2023, the Taskforce on Climate-related Financial Disclosures ("TCFD") published its 2023 Status Report. Alongside it, the Financial Stability Board ("FSB") published its 2023 Annual Progress Report on climate-related disclosures.
The TCFD status report found that the percentage of companies providing climate reporting increased significantly. It also saw a growing percentage of companies disclosing TCFD-aligned information but noted that more progress is needed – in particular, only 4% of companies disclosed in line with all eleven TCFD recommendations. In setting future focus areas, the ISSB highlighted areas including developing implementation guidance on topics such as climate-related physical risk assessment and adaptation planning, climate-related scenario analysis at a sector or industry level, and Scope 3 GHG emissions measurement at a sector or industry level.
The FSB progress report includes the TCFD’s findings and the progress made by the ISSB following the introduction of IFRS S1 and IFRS S2 in June, as well as the progress made in the area of assurance. Following the release of the ISSB’s standards, the report confirms the TCFD’s work is now complete and the FSB has requested the ISSB assume responsibility in 2024 on monitoring progress in companies’ disclosures, including early take-up of IFRS S2 on specific climate-related disclosures and progress in achieving interoperability.
Digital version of the Takeover Code launched
The new digital version of the Takeover Code is now available on the Takeover Code website. The digital Code provides greater functionality, including navigation between provisions of the Code, pop-up boxes for defined terms, and tabs linking Rules with related Practice Statements. The website also contains a PDF copy of the Code and allows users to download individual Rules and sub-Rules as PDFs.