U.K. public companies will see increased scrutiny in 2021 from U.K. money managers when it comes to ethnic minority representation on boards and climate-change response, the U.K. Investment Association said Wednesday.
Shareholders expect companies to improve ethnic diversity on their boards in this year's annual general meeting season as well as consider executive pay, gender representation and the impact of climate change on the long-term value of their businesses.
The IA's corporate governance research service, Institutional Voting Information Service, for the first time in 2021 will issue an "amber top" to any FTSE 350 companies that do not disclose either the ethnic diversity of their board or a credible action plan to achieve it.
IVIS produces reports on companies in relation to compliance with corporate governance best practices. Red and amber "tops" show the most severe issues.
Investment managers also want to see companies report on climate-related risks in a consistent, clear and comparable manner. In 2021, companies that do not address all four pillars of disclosure standards by the Task Force for Climate-related Financial Disclosures will receive for the first time an "amber top."
"The U.K.'s boardrooms need to reflect the diversity of modern-day Britain," said Andrew Ninian, director for stewardship and corporate governance at the IA, in a news release. "With three-quarters of FTSE 100 companies failing to report the ethnic makeup of their boards in last year's AGM season, investors are now calling on companies to take decisive action to meet the Parker Review targets. Those who fail to do so this year will find themselves increasingly under investors' spotlight."
The U.K. Parker Review set a target in 2017 of having at least one director from an ethnic minority background by 2021.
Mr. Ninian added that investors continue to monitor remuneration and have warned remuneration committees not to compensate executives for cutting employees' pay as a result of the pandemic. "Investors also do not generally expect bonuses to be paid if a company has taken government or shareholder support — any company that choses to do so is expected to provide a clear rationale," he added.