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In brief

The FCA recently published a consultation paper (CP21/24: Diversity and inclusion on company boards) setting out a number of proposals to enhance diversity-related reporting by certain listed companies. Proposals include creating new requirements in the Listing Rules for certain premium and standard listed companies to publish (in their annual report and accounts) a “comply or explain” statement on whether they have achieved proposed targets for gender and ethnic minority representation on their board, as well as preparing further numerical data on the gender and ethnic diversity composition of the company’s board, key board positions, and executive management team. The consultation will close on 20 October 2021, with the proposed rule changes expected to come into force for financial years starting on or after 1 January 2022.


While these proposed new reporting obligations are clearly well intentioned and will hopefully continue to build on the progress of various diversity initiatives over the last 20 years, the “comply or explain” aspect is likely to be key for many in-scope companies, in practice, given the proposed timeframe. It is already apparent from listed companies’ endeavours to meet the Hampton-Alexander Review and Parker Review targets, just how challenging this can be. Compiling meaningful numerical data on diversity issues is also challenging, even for those companies with well-resourced D&I initiatives already in place, as it relies on individual employees being prepared to share very sensitive personal information and involves compliance with complex data protection rules on the collection and processing of such information. The FCA acknowledges some of the challenges, including that, for overseas issuers, the obstacles posed by the proposed disclosure requirements are likely to be even greater given the varying degrees of progress on gender diversity globally, as well as the fact that the composition of ethnic minorities may be “country-specific”. 

Nevertheless, the FCA’s determination to take action in this area is clear. It has already considered whether or not this proposal may make listing on the FCA’s Official List and admission to trading on UK-regulated markets more onerous and, therefore, less attractive, particularly to overseas issuers, at a time when the UK government is looking at ways to make the UK a more attractive listing venue post-Brexit. It has concluded that the benefits (in terms of upholding the UK’s position as a thought-leader with high standards of corporate governance and market integrity), along with the flexibility provided by the “comply or explain” mechanism, outweigh those considerations, and it has also chosen to take action directly when an alternative route may have been to suggest changes to the Corporate Governance Code. It will also be interesting to see whether, and, if so, when, the proxy advisory firms will amend their voting recommendations to align with the FCA’s proposed targets for board composition.

In depth

The proposed new disclosure requirements

With the aim of improving the availability of clear, reliable and easily comparable information on the diversity of boards and executive management teams, the FCA is proposing to amend the Listing Rules to require that in-scope entities publish, in their annual report and accounts:

  • a “comply or explain statement” on whether they have achieved the following targets as at a specific reference date:
    • at least 40% of the board are women (including individuals self-identifying as women);
    • at least one of the senior board positions (Chair, CEO, SID or CFO) is held by a woman (including individuals self-identifying as women); and
    • at least one member of the board is from a non-White ethnic minority background (as categorised by the ONS); and
  • in a tabular format, numerical data on the gender and ethnic1 diversity of their board, senior board positions (Chair, CEO, SID and CFO) and most senior level of executive management.

Where in-scope entities have not met all of the targets, the FCA proposes that they will be required to indicate the targets that they have not met, and to explain the reasons for that. In-scope entities are also likely to be required to set out any changes to the board that have occurred between the reference date and the date on which the annual financial report is approved that materially affected the entity’s ability to meet one or more of the targets. The new Listing Rules are likely to be accompanied by guidance on further voluntary disclosures in-scope entities may wish to make to accompany the required disclosures.

The FCA is also proposing making changes to the existing rule (in the Disclosure Guidance and Transparency Rules2) that requires in-scope entities to describe the diversity policy applied to the entity’s administrative, management and supervisory bodies as part of their corporate governance statement. While the current rule only specifically refers to a limited number of diversity aspects (being age, gender, or educational and professional backgrounds), the FCA is proposing to expand this to encourage entities to consider a broader range of diversity aspects, including sexual orientation, people with disabilities and individuals from lower socio-economic backgrounds. They are also proposing including guidance that encourages entities to consider if they can provide more data on diversity aspects, if possible, as part of indicating the results of their diversity policy.

Entities that are likely to be within the scope of the proposed new disclosure requirements

The entities that are likely to be within the scope of the proposed amendments to the Listing Rules are UK and overseas issuers with equity shares, or certificates representing equity shares, admitted to the premium or standard segment of the FCA’s Official List. The FCA is proposing to exclude the following from the scope of the reforms: (i) open-ended investment companies; (ii) SPACs3; and (iii) issuers of debt securities, securitised derivatives or miscellaneous securities.

Other aspects of diversity

For now, the FCA is not proposing board-level targets or specific data disclosures on aspects of diversity other than gender and ethnicity. However, there are signals in the consultation paper that the FCA may consider taking further measures to encourage transparency and progress on other diversity aspects in the future.

The wider context

This consultation paper follows on from the fifth and final report of the Hampton-Alexander Review and the latest update from the Parker Review, and also complements the FCA’s recent joint FCA/PRA Discussion Paper: “Diversity and inclusion in the financial sector – working together to drive change“, which seeks to engage financial firms and other stakeholders in a discussion on accelerating the pace of meaningful change on diversity. The FCA acknowledges the overlap between the two documents, particularly for financial services firms that have shares admitted to the FCA’s Official List. This consultation also closely follows the FRC’s publication of research (“Board Diversity and Effectiveness in FT350 Companies“), by SQW and the Leadership Institute at London Business School, that sets out some of the successes of the various diversity initiatives from the last 20 years, and also many of the challenges that still lie ahead in this area.

Next steps

The FCA has stated that, subject to consultation feedback and FCA Board approval, it will seek to make relevant rules by late 2021, and that those rules will apply to financial years starting on or after 1 January 2022, so that reporting will start to be seen in annual financial reports published for that year in spring 2023. However, the FCA encourages companies to consider making disclosures on a voluntary basis in annual financial reports published before then.

1 The FCA proposes to use ONS categories for ethnicity broken down across five categories, as follows: (i) White (White British, White Other); (ii) Black, African, Caribbean or Black British; (iii) Asian (Chinese, Indian, Bangladeshi, Pakistani, Other Asian); (iv) Mixed or Multiple ethnic groups; and (v) Other ethnic group (Arab, Other ethnic group).

2 DTR 7.2.8AR.

3 “Shell companies” as defined in LR 5.6.5AR.


Robert Adam is a partner in the Firm’s Corporate Group in London and is the Corporate Know How and Training Partner. He joined Baker McKenzie as a trainee in 1998 and became a partner in 2008. Robert was seconded to the Takeover Panel for two years and also spent seven months as a partner on secondment at British American Tobacco. Robert sits on the Law Society Company Law Committee and is listed in The Lawyer's Hot 100.


Laura Bentham is an associate in Baker McKenzie's London office.

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