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Investment Association sets out expectations on ethnic diversity, climate change and executive pay ahead of 2021 AGM season

The Investment Association (IA) has today issued a press setting out expectations for companies on issues such as diversity, climate change and executive pay ahead of the 2021 AGM season.

1. Ethnic Diversity on Boards

For companies with year-ends on or after 31 December 2020:

Amber-top (Corporate Governance Report) - for FTSE 350 companies that do not disclose either the ethnic diversity of their board, or a credible action plan to achieve the Parker Review targets of having at least one director from an ethnic minority background by 2021.


The UK’s boardrooms need to reflect the diversity of modern-day Britain. With three-quarters of FTSE 100 companies failing to report the ethnic make-up 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.


2. Gender Diversity – Boards, Executive Committee and direct reports

For companies with year-ends on or after 31 December 2020:

Red Top (Corporate Governance Report) – FTSE 350 companies that have female representation of 30% or less on their Board

Red Top (Corporate Governance Report) – FTSE 350 companies that have female representation of 25% or less in their Executive Committee and its direct reports

Amber Top (Corporate Governance Report) – FTSE SmallCap companies that have female representation of 30% or less on their Board

Amber Top (Corporate Governance Report) – FTSE SmallCap companies that have female representation of 25% or less in their Executive Committee and its direct reports

Investors are also seeking greater progress on gender diversity, with companies whose board comprise of 30% or less female directors receiving a ‘red-top’ – an increase on last year’s 20% threshold


3. Climate change

For companies with year-ends on or after 31 December 2020:

Amber-top (ESG report) – companies in high-risk sectors (sectors identified by the Task Force for Climate-related Financial Disclosures (TCFD) as ‘potentially most affected by climate change’ – including financials, energy, transportation, materials and buildings, agriculture, food, and forest products) who do not address all four pillars of TCFD (governance; risk management; strategy; and metrics & targets)

The UK is now at critical juncture as we look to reach net zero by 2050. As stewards of the economy, investment managers have an important role to play in supporting companies transition to a more sustainable future. Having clear and consistent data on the climate-related risks faced by companies is vital to achieve this, and investors will now be placing additional pressure on those that fail to provide this information.


4. Executive pay

‘Investors will also continue to shine a spotlight on executive pay, having already cautioned companies to treat their executives in line with the rest of the workforce and remain mindful of the pandemic’s impact on society. Investors have warned remuneration committees not to compensate executives for reduced pay as a result of the pandemic by adjusting this year’s remuneration, whether through ‘catch up’ awards or disproportionate salary increases. 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.

The press release can be read here.

The IA’s 2021 Shareholder Priorities can be read in full here.

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