Proposals reflect growing investor focus on the ESG performance of listed companies.

By Chris Horton, James Inness, Rob Moulton, Anna Ngo, and Johannes Poon

The UK Financial Conduct Authority (FCA) has launched a consultation setting out proposed changes to its Listing Rules (LRs) and Disclosure Guidance and Transparency Rules (DTRs). The proposals seek to: (i) increase transparency for investors on the diversity of listed company boards and executive management; and (ii) improve considerations of broader diversity aspects within diversity policies and related disclosures by listed companies.

The consultation opened on 28 July 2021 and will close on 20 October 2021. Subject to consultation feedback and FCA Board approval, the FCA will seek to finalise the relevant rules by late 2021.

Proposed changes to the LRs

Listed companies that are that are in scope would need to disclose in their annual financial report whether they meet specific board diversity targets on a “comply or explain” basis. The targets under consultation are:

  • At least 40% of the listed company board should be women (including those self-identifying as women)
  • At least one of the senior board positions (Chair, Chief Executive Officer (CEO), Senior Independent Director (SID), or Chief Financial Officer (CFO)) should be held by a woman (including those self-identifying as a woman)
  • At least one member of the board should be from a non-white ethnic minority background (as referenced in categories recommended by the Office for National Statistics)

In-scope companies that have not met all of the targets would be required to indicate the target(s) that have not been met and explain the reasons for not meeting the target(s).

Alongside this “narrative” comply or explain disclosure, the FCA would require such companies to publish headline numerical data in their annual financial reports on the composition of their board and on the most senior level of executive management by gender and ethnicity, as of a specified date during their accounting year. This data would be produced in a standardised tabular format (accounting for wider gender categories, including persons self-identifying as either gender and non-binary).

These new LR requirements would apply to UK and overseas issuers with equity shares, or certificates representing equity shares (such as global depositary receipts), with a premium or standard listing, but would exclude open-ended investment companies and shell companies (including SPACs).

Proposed changes to the DTRs

The FCA is proposing to amend an existing DTR provision (which broadly requires in-scope companies to disclose in their corporate governance statement the diversity policy as applied to their board) to:

  • Indicate that this disclosure should include how any diversity policies apply to the key committees of the board, specifically the committees on remuneration, audit, and nominations
  • Clarify that the aspects of diversity to which the diversity policy may relate could include, for example, ethnicity, sexual orientation, disability, and socio-economic background

A separate guidance provision would be added to the DTRs to encourage companies to include numerical data on the diversity of the boards and the committees referred to above.

The existing DTR provision relevant to these proposed amendments applies to certain UK issuers admitted to UK-regulated markets and overseas listed companies with securities admitted to the FCA’s Official List, with an exemption for small or medium companies that satisfy relevant criteria.


The key rationale for these proposals is to improve the quality and consistency of diversity and inclusion disclosures made by listed companies. A review undertaken by the Financial Reporting Council in 2020 concluded that corporate governance reporting across UK-listed companies was, in many cases, not coherent and cohesive. The increase in transparency under the FCA’s proposals would improve investors’ ability to assess the information provided and to compare across peers and/or benchmarks. Given the increasing prominence of ESG investing, this increased transparency is expected to place greater pressure on listed companies to intensify focus on diversity and inclusion.

The gender and ethnic minority reporting targets proposed for the LR changes (which are reference points for the comply or explain statement, rather than strict quotas) are largely consistent with those set out under the Hampton Alexander review and the Parker review. The 40% targets for female board representation under the proposals exceed the 33% target set by the Hampton Alexander review, on the basis the latter target has already been mostly achieved across the FTSE 350.

The FCA’s proposals reflect recent measures undertaken in other jurisdictions to promote diversity and inclusion. On 6 August 2021, the US Securities and Exchange Commission approved Nasdaq’s proposed rule changes to require companies on Nasdaq’s US Exchange to:

  • Publicly disclose board-level diversity statistics using a standardised template
  • Have, or explain why they do not have, at least two “diverse” directors, including one member who self-identifies as female and one member who self-identifies as either an underrepresented minority or LGBTQ+

For more on the proposed rule changes and the applicable transition periods, see Latham’s recent blog post.

Other jurisdictions that are implementing or consulting on measures to promote diversity on board and senior management positions of listed companies include Hong Kong, Japan, Australia, and Singapore.

The new LR and DTR requirements would apply to accounting periods starting on or after 1 January 2022, so that reporting will appear in annual financial reports published in spring 2023. However, given that the FCA is encouraging companies to consider making disclosures on a voluntary basis before then, listed companies should consider now how these proposals would apply to their existing policies, practices, and reporting for this current accounting period, so they will be at the forefront of best practice and will be positioned to provide the disclosures voluntarily in spring 2022.