FCA consults on proposals to boost diversity disclosure on listed company boards

The FCA has launched a consultation on proposals to improve transparency for investors on the diversity of listed company boards and their executive management teams.

The proposed changes include requiring listed companies to annually publish a ‘comply or explain statement’ on whether they have achieved certain proposed targets for gender and ethnic minority representation on their boards, as well as data on the make-up of their boards and most senior level of executive management in terms of gender and ethnicity.

The measures suggested by the regulator aim to ensure diversity disclosures are being reported beyond the largest listed companies.

The watchdog’s approach also offers flexibility for overseas companies, with its ‘comply and explain’ method allowing any national or cultural context to be explained.

The FCA is proposing changes to its disclosure and transparency rules to require companies to ensure any existing disclosure on diversity policies addresses key board committees and considers broader aspects of diversity. 

This could, for example, include considerations of ethnicity, sexual orientation, disability, lower socio-economic backgrounds, and other diversity characteristics. 

It also encourages companies to provide further data on the result of their diversity policies, considering these wider aspects where possible.

The proposals apply to UK and overseas companies with equity shares in either the premium or standard listing segments of the FCA’s official list, while the disclosure and transparency changes apply to companies with securities traded on UK regulated markets, such as the main market of the London Stock Exchange.

The Listing Rule diversity targets are not mandatory for companies to meet, so the regulator is not setting ‘quotas’ but providing a positive benchmark for issuers to report against.

The consultation period will last for 12 weeks, with a closing date of 22nd October.

Subject to consultation feedback and FCA board approval, it will seek to make relevant rules later this year.

Clare Cole, director of market oversight at the FCA, said: “There is a current lack of standardised and mandatory transparency about diversity on listed company boards, particularly outside the FTSE 350 who do not provide data to the voluntary initiatives in this area. 

“Interest from investors is growing and companies are increasingly focusing on this topic due to ESG investing, as well as wider social and public policy concerns.  

“Our proposals are intended to increase transparency by establishing better, comparable information on the diversity of companies’ boards and executive committees. 

“This will provide better data for companies and investors to assess progress in these areas and make investment decisions, reduce investor search costs, and inform shareholder engagement, enhancing market integrity.  

“Over time, we expect enhanced transparency may strengthen incentives for companies towards greater diversity on their boards and encourage a more strategic approach to diversity in their pipeline of talent. 

“This may have broader benefits in terms of the quality of corporate governance and company performance in due course.”

This follows a recent discussion paper published earlier this month, exploring how to promote diversity and inclusion across the financial services sector as a whole.

The regulator confirmed it will continue to focus on diversity issues beyond the proposals currently set out.

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