The UK Corporate Governance Code is part of UK company law and corporate governance framework. It applies to all Premium-listed companies on the London Stock Exchange.
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Following a consultation by the government on restoring trust in corporate governance in 2022, the FRC was asked to revise the code.
However, in October the government withdrew plans for regulation to impose additional reporting obligations on large companies, which was supposed to be reflected in the new code.
The FRC then decided to drop many planned changes, including those relating to the role of audit committees on ESG and modifications to existing provisions around diversity, overboarding (when one person sits on too many boards, diminishing their ability to serve the organisations effectively) and committee chairs engaging with shareholders.
It will also drop proposals that sought to align the Code with the additional reporting requirements in the withdrawn reporting regulations.
The FRC produced a draft document in 2023 which contained 14 references to ESG. However, there were no references to ESG in the finalised code, which will come into force in 2025.
The FRC’s website said that it has made the minimum changes necessary: “The FRC is conscious that the expectations for effective governance must be targeted and proportionate.
“This approach ensures the FRC balances underpinning trust and confidence in UK PLC for investors and others whilst keeping burdens on businesses to the minimum necessary.”
Luke Hildyard, executive director of responsible business thinktank the High Pay Centre, said the changes suggest that the FRC has deprioritised promoting responsible business practice and accountability due to a backlash from some investors and corporate leaders.
He told HR magazine: "Deleting every reference to ESG issues that appeared in the draft code is an interesting indicator of a recent backlash against the concepts of responsible business practice and accountability from some investors and corporate leaders.
“The initial proposals were extremely light-touch so abandoning them may not have much impact, but it does send a strong message about what boards should prioritise."
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However, Sophie Lambin, CEO of sustainability agency Kite Insights, said many businesses maintain a strong commitment to responsible business regardless of regulation.
She told HR magazine: “It’s possible to move away from the language of ESG while still maintaining the urgency to act on planetary and human needs. Indeed, we see businesses remaining committed to embedding sustainability and climate transition plans into their organisations even as ESG becomes more politicised in some circles.
"Governments can best serve business and markets by standardising metrics for sustainability performance, whether it goes by ESG or another name. The important thing is it remains a high priority for them.”
