FCA finalises new diversity rules for firms

The FCA has finalised rules requiring listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management, making it easier for investors to see the diversity of their senior leadership teams.

Related topics:  Regulation
Rozi Jones
20th April 2022
"Enhancing transparency at board and executive management level will help hold companies to account and drive further progress."

The FCA’s approach sets positive diversity targets for listed companies. If they cannot meet them, they need to explain why not. This approach allows flexibility for smaller firms or those based overseas. The rules also allow companies to decide how best to collect data from employees to show they are meeting the targets.

The rules, first announced in July 2021, will apply to listed companies for financial accounting periods starting from 1 April 2022. The FCA will review the rules in 3 years’ time to make sure they are working and to check if the diversity targets are still appropriate.

Sarah Pritchard, executive director of markets at the FCA, said: "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."

Phillippa O’Connor, head of reward and employment at PwC, said: “The FCA has listened to concerns from firms, and as a result is giving them more flexibility in how they collect and report the data. This flexibility requires firms to take a view on their data categorisation and methodology, which may present a challenge for companies looking for prescriptive guidance during the first years of disclosure. However, in the long run it creates scope for companies to reflect what categories and targets are right for them, in order to provide meaningful disclosure and support their broader diversity and inclusion agenda. Firms will also have to consider how they maintain the privacy of individuals, in particular where they are subject to multiple reporting requirements.

"The new rules will lead to greater transparency, and pave the way for increased disclosure of wider workforce diversity statistics, as well as diversity and inclusion targets, which play an important role within the broader ESG agenda."

“Improving diversity, particularly at the most senior levels, remains a challenge and will take time. Firms should use this change as a catalyst to making meaningful and sustainable progress on diversity and inclusion more broadly. This will require a concerted effort to recruit more board members with diverse backgrounds or experiences, and a more strategic approach to developing a diverse pipeline of talent. Firms should consider how they can root out biases across the employee lifecycle, by looking at culture, performance management, recruitment processes, progression and attrition.”

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