The Financial Conduct Authority (FCA) has proposed new rules that will require UK listed companies to disclose the representation of women and ethnic minorities on their boards in each annual report.
These new rules, which will come into effect on 1st April 2022, are designed to make the level of diversity in senior leadership teams more visible to investors.
The city watchdog will also be implementing a new set of targets for the executive management of companies, which will involve 40% of boards being made up of women and at least one woman and ethnic minority person in a senior board position.
In the FTSE 100, only five ethnic minority directors occupied the position of chief executive (CEO) and none were women.
Likewise, a survey conducted by the Department of Business in March last year to track the progress of the Parker Review targets found that 124 out of the 998 board positions included for FTSE 100 companies in the study were held by ethnic minority directors (118 in total with five sitting on more than one board).
A ‘comply or explain’ approach will be taken with these rules so that companies who have struggled to meet targets, particularly by smaller or overseas issuers, are given some flexibility in reaching their targets, according to the FCA.
These new rules are part of the FCA’s ongoing commitment to accelerate diversity and inclusion in the financial industry.
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."
Diversity has been an increasingly important factor in how shareholders vote in AGMs, according to observations by the Investment Association (IA).
A recent survey by abrdn even highlighted that 53% of participants said that making a positive impact was an important factor in how they invest and 32% claimed they would be willing to receive lower returns for holdings they care about.