U.K.-listed companies must comply with three diversity and inclusion targets set by the country's financial watchdog or explain why they have failed to do so.
The targets apply to company boards and executive management.
The Financial Conduct Authority finalized its rules on reporting information and disclosing against its diversity targets on Wednesday.
Under the diversity targets, at least 40% of a company's board should be women; at least one of the senior board positions — chairman, CEO, chief financial officer or senior independent director — should be a woman; and at least one member of the board should be from an ethnic minority background, excluding white ethnic groups.
Companies that cannot meet the targets must explain why not. Companies may themselves decide how best to collect data from employees to show they are meeting the FCA's targets.
A document detailing the rules said the FCA seeks to increase transparency for investors on the diversity of boards and executive management of U.K.-listed companies. Setting targets with a "comply or explain" requirement "is designed to be a positive reporting benchmark to encourage progress. However, it serves as a starting point to encourage scrutiny and consideration of diversity and inclusion more broadly, both at senior levels of listed companies and throughout their businesses," the FCA said.
The rules apply to listed companies for financial accounting periods starting April 1, 2022. Alongside the comply or explain disclosure, the FCA wants companies to publish numerical data on the sex or gender identity and the ethnic diversity of their board, senior board positions and executive management in a standardized table format. Companies should also explain how they collected the data.
The rules will be reviewed in 2025 to ensure they are working and to check that the targets are still appropriate.
"As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress," Sarah Pritchard, executive director of markets at FCA, said in a news release accompanying the final rules.
