3)2) The CISI Code of Conduct, 3)ESG Flashcards
2.1 What considerations could an individual following CISI code make to decide the right course of action? (4)
Clear and Honest
Impartial and Open
Straightforward and Transparent
Informed and Fair
2.2 What are the CISI’s 8 Principles?
- Personal Accountability
- Client Focus
- Conflict of Interest
- Respect for Market Participants
- Professional Development
- Aware of Capabilities
- Respect others and the Environment
- Speak Up and Listen Up
3.1 Background to ESG
The 2018 version of the UK Gov Code incorporates ESG factors within Principle A:
- A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society
Statement from the UK Stewardship Code 2020:
‘Environmental, particularly climate change, and social factors, in addition to governance, have become material issues for investors to consider when making investment decisions and undertaking stewardship’
3.1 What do Principles 1 & 7 for Asset Owners and Managers in the UK Stewardship Code 2020 reference regarding ESG factors?
- Purpose, strategy and culture (PRIN 1) - sig purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society
- Stewardship, Investment and ESG integration (PRIN 7) - signatories systematically integrate stewardship and investment, including material ESG issues, and climate change, to fulfil their responsibilities
Meaning sig should disclose material ESG issues they have prioritised for assessing investments, prior to holding, monitoring through holding and exiting
3.1 What does Principle 5 for Service Providers in the UK Stewardship Code 2020 reference regarding ESG factors?
Supporting client’s stewardship (PRIN 5) - signatories support clients’ integration of stewardship and investment, taking into account material ESG issues, and communicating what activities they have undertaken
3.2 What are the content requirements for the strategic report based on?
Section 414C - which sets out the overall framework and main principles for the content of the strategic report
Section 414CB - which relates to the contents of the non-financial info statement
Section 414CZA - which relates to the Section 172(1) statement
3.2 What are the categories for reporting requirements?
Public Interest Entity (PIE)
Quoted companies (employees < 500)
Quoted companies (employees > 500)
Large and medium-sized private companies and qualifying partnerships (excl PIEs with employees > 500)
3.2 What is a Public Interest Entity?
A traded company, a banking company, an authorised insurance company, and a company carrying on insurance market activity
3.2 Who does Section 414CB (NFI) and Section 414CZA (Section 172(1) Statement) apply to?
NFI is non-financial info
414CB to PIEs
414CZA to large companies
3.2 What guidance does the FRC provide for information non-PIEs should include in the Strategic Report?
a. Environmental matters (inc the impact of the entity’s business on the environment)
b. the entity’s employees
c. Social and community and human rights issues, including info about any policies of the entity in relation to those matters and the effectiveness of those policies
The report must state if it does not contain any of these
3.2 What are the contents of the NFI statement according to Section 414CB for PIEs?
- The NFI must contain info to the extent necessary for an understanding of the company’s development, performance and position and the impact of its activity, relating to, as a minimum:
a. environmental matters
b. the company’s employees
c. social matters
d. respect for human rights
e. anti-corruption and anti-bribery matters - The info must include:
a. a brief desc. of the company’s business model
b. a desc. of the policies pursued by the company in relation to the matters mention in subsec (1) (a) to (e) and any due diligence processes implemented by the company in pursuance of those policies
c. a desc. of the outcome of those policies
d. a desc. of the principal risk relating to the matters mentioned in subsec (1)(a) to (e) arising in connection with the company’s operations and, where relevant and proportionate:
i. a desc of its business relationships, products and services which are likely to cause adverse impacts in those areas of risk
ii. a desc. of how it manages the principle risks
e. a desc. of the non-financial key performance indicators relevant to the company’s business
3.2 What are the contents of the Section 172 (1) statement according to Section 414CZA for large companies?
strat report for a financial year must include a statement which describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under section 172
3.2 What is contained in Section 172(1)?
Director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to:
a. the likely consequences of any decision made in the long-term
b. the interests of the company’s employees
c. the need to foster the company’s business relationships with suppliers, customers and others
d. the impact of the company’s operations on the community and the environment
e. the desirability of the company maintaining a reputation for high standards of business conduct
f. the need to act fairly as between members of the company
3.2 What info does the FRC suggest companies include on a Section 172(1) statement?
- the issues, factors and stakeholders the directors consider relevant in complying with section 172(1) (a) to (f) and how they have formed their opinion
- the main methods the directors have used to engage with stakeholders and understand the issues to which they must have regard
- information on the effect of that regard on the company’s decisions and strategies during the financial year
3.2 What must large-sized private companies with over 250 employees provide according to Sections 414A to 414D?
- A statement:
a. describing the action that has been taken during the financial year to introduce, maintain or develop arrangements aimed at:
i. providing employees systematically with information on matters of concern to them as employees
ii. consulting employees or their representatives on a regular basis so that the views of employees can be taken into account in making decisions which are likely to affect their interests
iii. encouraging the involvement of employees in the company’s performance through an employees’ share scheme or by some other means
iv. achieving a common awareness on the part of all employees of the financial and economic factors affecting the performance of the company
b. Summarise
i. directors engagement with employees
ii. regard to employee interests
- statement re: hiring, continuing employment and training, career development and promotion of disabled persons
