UK Corporate Governance Update Spring 2025

On 21 January 2025, the Financial Reporting Council (FRC) published its first review of climate related financial disclosures (CFD) by AIM and large private companies in scope of mandatory reporting requirements in the Companies Act 2006 (the Act). The reporting requirements apply to entities with more than 500 employees that are:

• companies admitted to trading on a regulated market;
• banking and insurance companies;
• AIM companies; or
• private companies or LLPs with a turnover of over £500 million.

The FRC’s review looked at the annual reports of 20 AIM and large private companies. The FRC noted that it was evident that it was the first time most companies had prepared CFD. The quality of reporting varied across the selection but areas for improvement were identified for most companies:

• Scenario analysis – many companies failed to produce the disclosure analysing the resilience of the company’s business model and strategy to different climate related scenarios. The FRC acknowledges this disclosure is difficult to produce and will develop over time
• Climate-related targets – only half of companies presented disclosures in relation to climate-related targets and assessment of progress against these using KPIs
• Governance arrangements – disclosures explaining governance arrangements in respect of climate related risks and opportunities were provided by nearly all companies but were often unstructured and spread throughout the report without cross reference
• Climate-related risk assessment – information explaining the climate-related risk assessment and management process was generally sufficient but some companies failed to explain how climate-related risks and opportunities were identified
• Climate-related risks and opportunities – most companies disclosed climate related risks but opportunities were not always identified. The time frames over which the risks and opportunities were assessed were not always described
• Format – some companies based their disclosures on the TCFD framework but a number of these failed to present one or more disclosures required by the Act
• Reference to information not in the annual report – some companies cross referred to climate-related information presented outside of the annual report. This does not comply with the Act
• Length of disclosures – the FRC highlights that good CFD disclosures do not have to be long. Better disclosures were often more concise and made use of tables and diagrams.

In December 2024, the UK Sustainability Disclosure Technical Advisory Committee (TAC) recommended endorsement of the first two IFRS Sustainability Disclosure Standards (IFRS Standards) for use in the UK. As reported in our Summer 2024 Corporate Governance update, it is intended that the IFRS Standards will be used to form the basis of the UK Sustainability Reporting Standards (UK SRS).

In endorsing the IFRS Standards, the TAC has recommended minor amendments to the IFRS Standards. The next step in the process will be a public consultation on the UK SRS which the Government had indicated would be published in the first half of this year. The TAC has noted that further amendments may be made to its endorsement recommendation on the basis of any new information received during the public consultation.

There is some discussion about the extent and aim of current sustainability reporting requirements in the UK and the FCA has released a statement to clarify that the aim of sustainability related rules is providing the market with information and that the rules do not prevent investment in defence companies.

EU simplification of sustainability legislation

On 26 February 2025, the EU Commission published the first two of its Omnibus simplification packages aiming to streamline and simplify sustainability reporting and due diligence requirements in the EU (Omnibus Proposals). You can read further detail on these changes here.

The proposals include, in respect of the Corporate Sustainability Reporting Directive (CSRD), amending the scope so that only EU companies with over 1,000 employees will be required to report in accordance with CSRD. With the UK Government expected to publish a consultation into the new UK Sustainability Reporting Standard (as explained above) in the near future, it will be interesting to see whether the UK Government opts to take a similar approach towards the size of the entities which will be in scope.

EFRAG voluntary EU sustainability standard

On 18 December 2024, EFRAG published the voluntary EU sustainability reporting standard for non-listed SMEs (VSME). The VSME is intended to support voluntary reporting by entities that are outside the scope of CSRD. Q&A published by the EU Commission at the same time as the Omnibus Proposals indicates that the EU Commission will adopt a voluntary standard for all companies that are out of scope of CSRD. The voluntary standard will be based on the VSME.

Parker Review 2025 update report

On 11 March 2025, the Parker Review committee published its latest update report (Update) looking at ethnic diversity of boards and senior management of FTSE 350 companies and the 50 largest private companies in the UK for the calendar year 2024. All of the FTSE 100 and 236 of the FTSE 250 responded to the Parker Review’s survey. Key statistics are as follows:

• FTSE 250 – 82 per cent had at least one ethnic minority director (a rise of 17 per cent since 2023)
• FTSE 100 – 95 per cent had at least one ethnic minority director
• 50 largest private companies – 48 per cent had at least one ethnic minority director
• Senior managers – since 2023, companies have been asked to set their own targets to reach by 2027 for the proportion of ethnic minority senior managers. As at 31 December 2024, the percentage of ethnic minorities in senior management in the FTSE 100 was 11 per cent. 65 FTSE 100 companies have now set targets with the average target being 15 per cent, meaning that FTSE 100 companies are aiming for an increase of 4 per cent by 2027.

The Update reports that only 34 of the 50 private companies responded to their request for data and hopes that the response rate will increase in the future.

As a reminder, companies listed in the equity shares (commercial companies) category are required to include a statement in their annual report as to whether at least one board member is from an ethnic minority. If this target has not been met the company must give the reasons why i.e. reporting is on a “comply or explain” basis and there is no mandatory requirement to have a board director from an ethnic minority. In addition, it is interesting to note the emphasis placed in the Update on the fact that the target set by the Review (to have at least one ethnic minority director) is a voluntary one and not mandatory.

FTSE Women Leaders Review report

On 25 February 2025, the FTSE Women Leaders Review published its latest report looking at gender balance on boards and in leadership positions in the FTSE 350 and the 50 largest private companies in the UK for the calendar year 2024. The Review continues the work of the Hampton-Alexander Review and the Davies Review. Overall the report highlights progress in a number of areas, including the following:

• Women on boards - women now hold 43 per cent of board roles at FTSE 350 companies and 30.5 per cent at the 50 largest private companies. Women non-executive directors of FTSE 100 companies are at par with men, comprising 50.1 per cent and there has been a significant increase in women executive directors of FTSE 100 companies to 22 per cent
• Women in leadership – women now hold 36.6 per cent of leadership roles at FTSE 100 companies and 35.3 per cent at FTSE 350 companies, however, some companies still have less than a third of leadership roles held by women so the 40 per cent target may not be reached until beyond 2025
• Four key roles (Chair, Senior Independent Director, CEO and Finance Director) - the recommendation is that at least one woman should be appointed to one of the four key roles. 77 per cent of the FTSE 340 and 60 per cent of the 50 largest private companies have now met this target, with the number of women SIDs in FTSE 30 companies growing to 56 per cent.

As a reminder, companies listed in the equity shares (commercial companies) category are required to include a statement in their annual report as to whether at least 40% of the individuals on its board are women and also whether at least one of the four key roles is held by a woman. If these targets have not been met the company must give the reasons why i.e. as set out above the targets are not mandatory. As with the Parker Review, the FTSE Women Leaders Review emphasises that the Review’s approach is voluntary.

Government consultation on mandatory ethnicity and disability pay gap reporting

On 18 March 2025, the Office for Equality and Opportunity launched a consultation on introducing mandatory ethnicity and disability pay gap reporting for large employers (those with 250 or more employees). The consultation is seeking views on the measures it proposes to include in the upcoming Equality (Race and Disability) Bill.

Large employers have been required to report on their gender pay gap data since 2017. The Government states that it is intending to use a similar reporting framework for ethnicity and disability to that already in place for gender pay gap reporting.

The Consultation is open until 10 June 2025.

In our Winter Corporate Governance Update we set out the timeline for introduction of further reforms under the ECCTA as set out in the Companies House ECCTA transition plan (Transition Plan).

Companies House have since updated the Transition Plan, with the latest update published on 12 March confirming that:

• from 18 March 2025, Companies House is able to carry out the checks on those looking to register as Authorised Corporate Service Providers to authorise them to carry out identity verification services
• from 8 April 2025, Companies House should be able to allow individuals to voluntarily verify their identity

You can read further detail in our ECCTA briefings for companies and LLPs.

Government response to the House of Lords report on the Modern Slavery Act 2015 (MSA)

On 16 December 2024, the Government published its response to the House of Lords MSA Committee report. The key content of this report is covered in our .

The Government response acknowledges that improvements are needed and specifically in relation to managing modern slavery within a supply chain states:

• it is planning to build on changes to the modern slavery registry (registry on which companies can voluntarily publish its modern slavery statements) to provide more data to the public
• it is working with a range of stakeholders to update the existing statutory guidance on modern slavery statements
• in relation to supply chain due diligence, it will assess the best ways to prevent environmental harms, modern slavery and human and labour rights in supply chains including effective due diligence rules and will consult with stakeholders as it considers further action
• It is committed to improving its response to modern slavery and reviewing how it can best increase transparency in supply chains.

Whilst the Government response sets out its intention to make improvements, there is no timeline for considering and consulting on any changes.

Independent Anti-Slavery Commissioner publishes strategic plan

On 11 February 2025, the Independent Anti-Slavery Commissioner (IASC) published its Strategic Plan 2024-2026 (Plan). The IASC is a role created by the MSA to encourage good practice sharing amongst those with a role to play in tackling modern slavery and human trafficking. The Plan sets out three core objectives:

• Objective 1 – preventing modern slavery
• Objective 2 – protecting victims
• Objective 3 – prosecuting offenders

The Plan notes the critical role of the private sector in tackling modern slavery as a significant risk in their operations and supply chain. It also notes that the provisions introduced by section 54 of the MSA on transparency in supply chains (requiring in scope organisations to prepare a slavery and human trafficking statement) were world leading at the time they were introduced. However, the Plan highlights concerns with compliance with the MSA and the lack of penalties for breach. Actions that the IASC will therefore look to take in relation to transparency in supply chains include:

• encouraging a strengthening of the UK’s policy response to forced labour in domestic and global supply chains
• pushing for mandatory human rights due diligence in the IK
• working with businesses to improve compliance with provisions in the MSA and promote best practice.

The IASC and the House of Lords MSA committee have therefore highlighted similar concerns in relation to the MSA. We await further developments from the Government following their recent response to the House of Lords (as described above).

Government publishes updated guidance on modern slavery statements

On 24 March 2025, the government published an updated version of “Transparency in supply chains: a practical guide”. The guidance explains how businesses should comply with the requirement in Section 54 of the MSA to produce a modern slavery statement. Section 54(5) MSA provides that the following content may be included in a modern slavery statement:

• organisational structure, its business and supply chains
• organisational policies
• due diligence processes
• assessing and managing risk
• understanding and demonstrating effectiveness in approach to modern slavery
• training provided to staff.

The guidance contains detailed explanations and examples of how a business may report against these six different areas in their statements. Whilst the previous version of the guidance also provided examples of reporting, the updated guidance is far more granular in its approach. The updated guidance will be helpful to businesses when putting together their modern slavery statements. However, the content of the modern slavery is not mandated and it remains for businesses to determine, on a voluntary basis, whether they cover the suggested content in their statements.

The FRC has published revised guidance on the going concern basis of accounting and related reporting which replaces the previous 2016 guidance (Guidance). The Guidance is non-mandatory and is intended to assist directors within scope with the application of applicable legal and regulatory requirements to:

• assess and make disclosures related to the going concern basis of accounting and any material uncertainties in financial statements
• disclose principal risks and uncertainties, which may include risks that might impact on solvency and liquidity, within the strategic report.

Key changes to the 2016 Guidance include:

• widening the scope of the Guidance to include companies that apply the UK Corporate Governance Code (Code). The 2016 Guidance applied to companies that were not within the remit of the Code. The FRC now considers it appropriate to provide a single source of guidance that can be useful for both Code and non-Code companies which highlights any differences
• providing additional guidance on overarching disclosure requirements.

The publication of the Guidance follows a consultation on draft guidance in August 2024. The new Guidance is substantially the same as the draft guidance.

The Risk Coalition has published new principles-based risk guidance (Risk Guidance) aimed at companies across all sectors and of diverse sizes. The Risk Coalition is an association of not-for-profit membership organisations, professional bodies and corporates committed to raising the standards of risk governance, oversight and risk management.

The Risk Guidance sets out eight principles, to support and enable better risk governance and more effective decision-making by boards and management. The aim of the Risk Guidance is to help leaders across industries understand what good risk governance looks like and to provide a road map for improving the quality and effectiveness of an organisation’s risk arrangements. The emphasis is placed on understanding risk in order to exploit opportunities. The eight principles are as follows:

• Board accountability
• Committee purpose
• Committee composition and membership
• The organisation’s approach to risk
• Risk culture and behaviours
• Navigating risks and pursuing opportunities
• Risk management, internal control systems and reporting
• Independent risk oversight and challenge.

The Financial Conduct Authority (FCA) has published a policy statement on enhancing the National Storage Mechanism (NSM) following its consultation in August 2024 (see our update). As set out in its consultation, the FCA is making a number of improvements to the process for submitting regulated information to the NSM. The main changes, which will be effective from 3 November 2025, are set out below:

• More comprehensive metadata requirements – expanding the requirement for filing of legal identifiers (LEIs) and updating the headline information used to categorise regulated information
• Requiring the same standard schema and application programming interface (API) for submitting information to the NSM – this will produce faster and standardised data exchange and processing and enable improved data quality controls.

The FCA will provide more information in 2025 on what issuers and users of the NSM can expect to change as a result of the new rules. The FCA’s aim is to make the NSM more similar to the SEC’s EDGAR system in terms of importance and impact and the functionality changes will make it easier to find information about issuers with securities admitted to trading on UK regulated markets.

PLSA stewardship and voting guidelines 2025

The Pensions and Lifetime Savings Association (PLSA) has published its Stewardship and Voting Guidelines 2025. The Guidelines may be obtained from the PLSA.
Significant developments for asset owners in 2024 highlighted by the PLSA include the outcome of the FCA’s Primary Markets Effectiveness Review, the FRC Stewardship Review, fiduciary duties for pension trustees and sustainability disclosure requirements.

ISS proxy voting guidelines 2025

On 17 December 2024, Institutional Shareholder Services (ISS) announced updates to its proxy voting guidelines which included the following:

• Board diversity – for companies required to report against the UK Listing Rules (UKLR) on a “comply or explain” basis, ISS may consider recommending voting against the chair of the nomination committee if the company has not met the disclosure requirements of the UKLR in relation to diversity. Progress against the targets will be evaluated. It is noted that higher diversity standards are expected from FTSE 350 companies. Similar changes are made in relation to ethnic diversity reporting. In both cases, diversity will be considered in a holistic manner. The changes made are to better reflect the requirements of the UKLR which require reporting against the targets rather than complying with them. This will allow greater flexibility for smaller companies which have not been subject to the recommendations of the FTSE Women Leaders Review or the Parker Review (see Diversity and Ethnicity Reporting above).
• Remuneration – updates have been made to reflect the Investment Association’s updated Principles of Remuneration published on October 2024 (see our update here) and the new UK Corporate Governance Code
• QCA Corporate Governance Code 2023 – changes have been made to reflect the new requirements of the 2023 QCA Code which is adopted by many smaller UK companies to put remuneration reports to an annual vote of shareholders as well as remuneration policies, where a binding shareholder vote is not mandated and to put all directors forward for annual re-election. The 2023 QCA Code is applicable to financial years beginning on or after 1 April 2024.

On 9 January 2025, ISS published the final form of the Proxy Voting Guidelines, incorporating the changes set out above.

The Vote Reporting Group has issued a feedback statement including an agreed form of vote reporting template. The template is for use by asset managers to communicate to their clients on voting activity with the aim being better understanding of voting decisions by companies, leading to higher quality engagement and market discipline. The template will be owned by the PLSA who will incorporate elements of their own existing template into the new form which is likely to be ready for use in early 2026.

On 23 January 2025, the Reporting on Payment Practices and Performance (Amendment) Regulations (Regulations) were made. The Regulations are largely in the same form as the draft published in October 2024 (please see our Autumn 2024 Corporate Governance Update). The Regulations came into force on 1 March 2025 and the new reporting requirements will apply in respect of financial years beginning on or after 1 April 2025.

Revised guidance has also been published to reflect the updated Regulations.

On 18 December 2024, the Private Equity Reporting Group (PERG) published updated Walker Guidelines (Guidelines). This follows a consultation by PERG and the British Venture Capital Association last year, as reported in our Autumn 2024 Corporate Governance Update.

The consultation followed a benchmarking exercise to compare and assess current disclosure requirements within the Guidelines with FTSE 250 (the chosen benchmark) and other relevant reporting regimes. As a result of feedback received during the consultation, the thresholds and tests that apply to determine whether a company is in scope of the Guidelines have been updated to modify the enterprise value (EV) thresholds and the UK revenue test to determine which companies are in scope of the Guidelines (reflecting the growth in the size of FTSE 250 companies). A new “smoothing mechanism” will also be introduced to focus on companies that grow or reduce in size to be brought in or out of scope.

Other changes will be made to bring the Guidelines in line with current reporting requirements and expectations including disclosures on employee matters and conflicts of interests. A number of areas will remain the same, including disclosures and identity of the private equity firm and board composition.

The intention is that the proposed updates to scope and the Guidelines will increase transparency and bring them more in line with what is expected of FTSE 250 companies. PERG will first report on compliance with the updated Guidelines in December 2026.

At the same time, PERG also published its Annual Report of compliance with the disclosure requirements of the current Walker Guidelines. PERG and PwC also published the Good Practice Reporting Guide for portfolio companies.