Primary Market Bulletin 46

The Financial Conduct Authority (FCA) has issued a new version of its Primary Market Bulletin, Bulletin #46. This time, the bulletin primarily deals with the FCA’s view on what constitutes inside information pursuant to Article 10 of the Retained Market Abuse Regulation (UK MAR) in relation to ESG stewardship principles – ESG stewardship principles thereby refer to the responsibility of institutional investors and asset managers to engage with companies and encourage them to adopt strategies that consider environmental, social, and governance factors in their decision-making processes. The Market Bulletin also briefly discusses the findings from a review of sponsor’s practices as regards the verification of TCFD alignment of the disclosures of sponsored issuers.
(1) Information exchange among shareholders as regards their voting intentions: Generally speaking, the FCA strongly supports collective shareholder engagement in ESG stewardship, acknowledging the importance of these relationships for markets. As many stakeholders have raised concerns about whether major shareholders can discuss their stewardship plans on particular issuers with other shareholders having similar ESG strategies without disclosing this to the market according to the market abuse regime, the FCA felt compelled to clarify this issue.
Specifically, the FCA states that discussing stewardship plans with similar shareholders would not typically breach the UK market abuse regime, provided that the shareholders‘ trading activities are based on their own intentions and knowledge of their own stewardship strategy only. However, if trading decisions are based on the knowledge of other market participants‘ shareholders (voting) strategies, the FCA might consider this a breach of MAR.
In this context, the FCA re-emphasizes the importance of publicly disclosing the stewardship principles of fund managers and other large investors, so as to prevent any potential conflicts with the MAR regulation. Also, when collaborating on shareholder votes, shareholders should be aware of their disclosure obligations under the Disclosure Guidance and Transparency Rules which may require shareholdings to be aggregated in certain circumstances.
(2) TCFD-Aligned Disclosures: Sponsor Procedures: All issuers must now include a statement in their annual financial report on whether they have made TCFD-aligned disclosures and explain any departures (comply or explain). Their sponsors, on the other hand, are obliged to assess whether the applicant issuers have established procedures to comply with the TCFD-aligned disclosures.
The FCA recently conducted an assessment of a sample group of sponsors to determine what changes they had made to their procedures to assess whether new applicants complied with the relevant requirements. The findings were generally positive, with most sponsors updating their internal policies, procedures, and risk appetite frameworks to include an emphasis on climate-related matters.
Most sponsors relied on internal expertise to address climate-related matters and TCFD-aligned disclosures, with around half of the sponsors providing mandatory training for investment banking employees. The FCA saw little additional work being specified by sponsors regarding the TCFD requirements and acknowledged that the impact of these requirements varies depending on the type of business and operations of the issuer.