ESG Weekly Update – April 28, 2022

28 April 2022

UK: FCA Publishes Rules on Diversity and Inclusion on Company Boards and Executive Management

The Financial Conduct Authority (FCA) published new rules requiring listed companies to disclose their female and ethnic representation on boards and executive management on a “comply or explain” basis with the following targets:

  • at least 40% of the board members should be women;
  • at least one senior board position, such as Chair, CEO, CFO or Senior Independent Director, should be held by a woman; and
  • at least one board member should be from an ethnic minority background (as defined by the Office for National Statistics, excluding those of White ethnic background).

The FCA’s aim is to increase transparency and encourage greater diversity in practice through investor pressure, with the ultimate goal of improving corporate governance and decision-making.

The FCA also introduced a requirement to make the numerical disclosures in a standardized table format alongside a narrative disclosure. Companies are encouraged to include a summary of key policies, mitigating factors or risks in achieving the targets. While data collection must comply with the UK General Data Protection Regulation, companies must ensure that their data collection or board appointment practices do not create issues around equality and discrimination. Companies are also required to explain how they collected the data. The FCA provides guidance in this sense, which requires consistent data collection, explanation of the method of collection or source of the data and, if self-reporting, the questions asked.

The rules apply to accounting periods starting from April 1, 2022.

FCA Policy Statement

Colombia: Colombia Launches Green Taxonomy

On April 11, Colombia’s president, Ivan Duque, announced the launch of a new green taxonomy (a classification system to clarify which investments are sustainable) aimed at drawing in public and private investors for projects that will help the country to meet its environmental objectives, including to reduce its greenhouse gas emissions by 51 percent by 2030 and become carbon neutral by 2050. The taxonomy is focused on mitigation and adaptation to climate change, conservation of ecosystems and biodiversity, water management, soil management, circular economy and pollution prevention and control.

The taxonomy mirrors the European Union taxonomy and was created by the Colombian finance ministry with the support of the International Finance Corporation and the World Bank. It outlines industries that will be used to mitigate climate change, including energy, construction, waste management and emissions capture, water supply and treatment, transportation, information and communication technologies, and manufacturing, and also includes a focus on land use, agriculture, forestry and livestock, as well as soil management.

In contrast to the EU taxonomy, the Colombian taxonomy has identified 18 economic assets and activities that contribute to climate change mitigation in the energy sector and has excluded nuclear and gas. Energy supplies other than solar, wind and ocean energy will be subject to a GHG life cycle study, and renewable energy purchases will be subject to long-term purchase power agreements and will require energy certificates.

Other Latin American countries are developing similar taxonomies, including Peru, Chile, Mexico and Brazil.

Colombia launches green taxonomy

UK: Businesses Push Initiative to Make the UK Companies Act a Better Business Act

The Better Business Act campaign, supported by more than 1,000 UK companies (including Danone, Jamie Oliver Group and Virgin Management, to name a few), is lobbying for an amendment to Section 172 of the UK Companies Act. The section currently provides that directors have a duty to promote the success of the company, having regard to “(a) the likely consequences of any decision in the long term; (b) the interests of the company's employees; (c) the need to foster the company's business relationships with suppliers, customers and others; (d) the impact of the company's operations on the community and the environment; (e) the desirability of the company maintaining a reputation for high standards of business conduct; and (f) the need to act fairly as between members of the company.”

The proposed amendments would require all UK company directors to consider their broader stakeholders by making decisions with the aim to benefit wider society and to reduce any environmental or social harm. Companies would be required to report yearly on how they implement this new strategy. Similar legislation has already been introduced in 40 US States, as well as in France, Italy and Canada, among others. The effort in the UK aimed at persuading the government to include the legislative amendments in the upcoming Queen’s Speech in May, which lays out the agenda for the next parliamentary session.

Better Business Act Campaign
Better Business Act Draft Amendments

U.S.: Mastercard Links Employee Bonus Pay to ESG Goals, Expanding an Existing Requirement on Executives

Last week, Mastercard announced that, starting this year, all of its employee bonuses will be linked to the company’s progress on its ESG initiatives, expanding the company’s March 2021 commitment to linking senior executives’ incentive compensation to sustainability objectives.

In a statement on Mastercard’s website, Chief Executive Michael Miebach stated that the company was “tying compensation to emissions, financial inclusion and the gender pay gap because we have a substantial impact in these areas and because they closely align with our vision.” A number of other financial services organisations, including the likes of Barclays, HSBC, ING and Natwest have linked their C-suite pay with ESG targets, but Mastercard is among very few organizations to expand such a policy to all employees.

In November 2021, the company shortened its timeline for achieving net-zero greenhouse-gas emissions by ten years and now intends to reach this aim by 2040. Mastercard has also committed to improving its gender pay gap; female employees now make 93 cents for every dollar male employees earn on average, compared to the 92.4 cents on the dollar the company reported in 2020.