5 min read
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
NEWS
ISSB issues IFRS Sustainability Disclosure Standards
On 26 June 2023, the International Sustainability Standards Board (ISSB) issued the inaugural IFRS Sustainability Disclosure Standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (the Standards). The Standards are also accompanied by guidance which suggests ways that a company may apply the disclosure requirements.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate with investors about the sustainability-related risks and opportunities that they face over the short, medium and long term, while IFRS S2 provides specific climate-related disclosures and is designed to be used with IFRS S1.
With strong international support, it is hoped that the Standards will become the standard global baseline of sustainability disclosures for companies. However, it remains the case that for that to be achieved, national legislators and regulators across the world will need to endorse the Standards and mandate its use, as has been the case with IFRS financial reporting standards. The UK government has stated that it will consult on a framework to adopt the ISSB’s standards for the UK and is expected to endorse the Standards within 12 months of publication (i.e. by June 2024). The Financial Conduct Authority also intends to update its reporting requirements for listed companies in line with the Standards once they are endorsed in the UK.
Government proposes reform to identification doctrine for corporate criminal liability
On 15 June 2023, the government announced a proposal to significantly reform the common law identification doctrine (a principle for attributing criminal liability to companies) by way of an amendment to the Economic Crime and Corporate Transparency Bill (ECCT Bill). The identification doctrine provides that a company will generally only be liable for the conduct of a person who has the status and authority to constitute the company’s ‘directing mind and will’. This doctrine has been criticised as setting too high a bar for establishing corporate criminal liability.
The draft legislative provision would impose liability on a company where a “senior manager”, acting within the actual or apparent scope of their authority, commits a relevant offence (offences within scope currently include bribery, fraud, money laundering and sanctions breaches). The offence also applies where a senior manager aids, abets, counsels or procures the commission of such an offence. The definition of senior manager (taken from the Corporate Manslaughter and Corporate Homicide Act 2007) is intended to capture those who play a significant role in the making of decisions about how the whole or a substantial part of the company’s activities are managed or organised, or the actual managing or organising of the whole or a substantial part of those activities. A new Factsheet: Identification principle for economic crime offences has also been published to accompany the proposal.
Companies House publishes guidance on enforcement approach in relation to the register of overseas entities
On 21 June 2023, Companies House published its Guidance on Register of Overseas Entities: approach to enforcement which explains its approach to using its enforcement powers (which includes civil financial penalties and criminal prosecution for serious cases) to secure compliance with the requirements of the register of overseas entities regime. Companies House has stated that it will take a “consistent and proportionate” approach to enforcement, taking account of and balance various factors, including the seriousness of the breach, impact on, people and the economy or integrity of the register and the cost and benefit of taking enforcement action. Of note is Companies House’s statement that the framework under this Guidance links to its more general enforcement approach (which will be produced later in 2023). This may therefore inform any enforcement approach for breaches for offences which will be introduced under the forthcoming Economic Crime and Corporate Transparency Bill.
European Commission publishes Q&A on application of the Foreign Subsidies Regulation
The European Commission (EC) has published guidance in the form of Q&As about the notification of concentrations under the Foreign Subsidies Regulation. The Regulation creates a new regime aimed at combating distortions in the EU internal market caused by foreign subsidies. It imposes mandatory notification and approval requirements for acquisitions of significant EU businesses (including new JVs), and large EU public tenders and gives the EC extensive powers to launch ex officio investigations. Broadly, transactions meeting the following thresholds will need to be notified to the EC and will not be able to proceed until cleared:
- turnover of the target (for acquisitions), the JV (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 (e.g. the acquirer and target, the merging entities, or the JV and its parents) received, from non-EU governments or state-owned entities, “financial contributions” of more than €50 million in the previous three years.
The guidance clarifies that, although the notification obligation for in-scope deals commences on 12 October 2023, notifications will be required from the date in respect of any deal which signs or launches on or after 12 July (when the EC’s powers under the Regulation commence) and which has not completed by 12 October 2023.
FRC publishes report on audit committee chairs’ views on ESG
On 19 June 2023, the Financial Reporting Council (FRC) published a research report on Audit Committee Chairs’ (ACCs) views on, and approach to, ESG activities and reporting. The report is based on research that YouGov conducted on the FRC’s behalf, involving qualitative interviews with 40 ACCs of public interest entities, representing a range of organisations (for example, FTSE350 companies and banks) and sectors.
The report found that, generally, ACCs showed an interest in and understanding of ESG activities within their organisations, such as initiatives aiming to reduce carbon emissions and increase board diversity. However, many are not directly involved in the relevant decision-making processes. Some interviewees also raised concerns about the broad and evolving nature of ESG, calling for practical, sector-specific guidance to measure environmental and social activities.