Our monthly snapshot of key changes and current affairs for Company Secretaries working in social housing.
Investment Association statement on shareholder priorities for 2021
The Investment Association (IA) published a paper on the 18 January 2021, which looks at the progress made by listed companies on four issues that were of particular importance in 2020. The paper also sets out its shareholder priorities and expectations for those companies in 2021. Although aimed at listed companies, the issues highlighted are just as relevant for the housing sector:
Issue 1: Responding to Climate Change: The IA called on listed companies in 2020 to make climate –related disclosures in line with the four pillars recommended by the Task Force on Climate-related Financial Disclosures (TFCD). The majority of companies disclosed against at least one pillar of TCFD and although this progress is promising, IA’s review found that the quality of disclosures could be improved. For 2021 IA is seeking what they refer to as ‘decision useful’ climate change disclosures with a greater focus on capital management and accounting for climate-related matters. The IA’s expect all listed companies to report in line with the TFCD and to communicate their business model will achieve a net zero emissions by 2050 and how they plan on achieving this goal.
The paper echoes much of the discussion around this within the sector, and highlights why governance plays such an important part in the Environmental, Social and Governance (ESG) agenda. Investors are looking for more transparency on climate-related metrics and targets and expect organisations to clearly identify the individuals and committees that are responsible for oversight and management of an organisation’s response to climate change. Although this is an issue for the whole board, naming an individual gives accountability and leadership on this critically important issue. The sector has its own reporting standard for ESG (The Sustainability Reporting Standard for Social Housing). If this isn’t something you are familiar with, then join us for our ‘Practical Guide to ESG’ seminar later this month.
Issue 2: Audit Quality: The IA called on audit committees in 2020 to clearly disclose how they ensured that their auditors had delivered a high-quality audit. The quality of the audits are essential to making good investment decisions as investors rely on the financial information presented in a company’s annual report and accounts.
The IA expects companies to demonstrate how they have judged the quality of the audit they received and how they have challenged management judgments.
Issue 3: Stakeholder Engagement: The IA has called on companies to better inform investors how they are fulfilling their director’s duties and taking into account of the views of their material stakeholders.
Investors expect companies to make quality disclosures outlining the approach taken to engaging, communicating and supporting the company’s stakeholders during the disruption caused by COVID-19. This should include how the Board reflected the views of their stakeholders in key decision making.
Issue 4: Diversity: The IA expects companies to continue to improve diversity across the senior leadership board and throughout the workforce with particularly focus on gender and ethnic diversity as:
- Ethnic Diversity: significant progress is needed and companies will be expected to take actions to improve ethnic diversity of their boards. This should include greater consideration of how the board reflects their employees, consumers and communities they serve.
- Gender Diversity: Companies should continue to identify and disclose their targets for improving the gender diversity of their boards and leadership teams and a timeframe to achieve those targets.
COVID-19 and the Black Lives Matter movement has reinforced the need for companies to ensure they have a resilient business model, reliable financial information, a stakeholder voice and a diversified workforce in order to navigate through economic uncertainty and to command the trust of the customers they serve.
The issues highlighted reflect the key themes within the new NHF Code of Governance. Whilst not all issues are within the remit of the company secretary, the paper does highlight the important role of governance in driving these issues forward and in managed your relationships with investors. It is worth sharing it with others within your organisation with responsibilities in these areas.
The importance of good quality data
The Regulator of Social Housing has recently downgraded One Housing Group from G1 to G2. The downgrade is consistent with its increased focus on data quality and accuracy over the last few years.
Some key take aways from the judgement:
- Where the board is assessing risks, this needs to be supported by accurate data to enable the board to foresee and manage risks in a sufficient and timely way.
- Ensure that your corporate strategy is aligned to risk appetite - of course this will change over time, particularly in light of new demands on resources such as the need for increasing investment in properties to reflect fire safety requirements.
- The board must satisfy itself on the controls which support financial and treasury information, planning and reporting, and ensure quality and timely information on a consistent basis.
The UK and the EU reached a trade and co-operation agreement (TCA) on the 24 December 2020, addressing the arrangements following the end of the Brexit transition period. Some key points to be aware of:
- On 1 January 2021, the GDPR ceased to have direct effect in the UK. However, as the UK is committed to maintaining an equivalent data protection regime, a UK version of the GDPR will apply from that date. The new “UK GDPR” carries across much of the existing EU GDPR legislation, but will apply as an independent law, outside the harmonised regime we have become used to under the GDPR.
- The TCA provides for the free flow of data between the EU and the UK until a data adequacy decision is reached. The deadline to reach this decision is 30 June 2021. During this interim period personal data passed to and from the UK will not be considered as transfers to a third country.
- You should ensure that all references in governance records, contracts and transparency notices are updated accordingly.
- The single biggest change is the requirement on contracting authorities to use the UK’s Find a Tender Service (FTS) to publish notices which would previously have been sent to and published in the Official Journal of the European Union (OJEU).
- There are other changes to the procurement legal framework as a consequence of the end of the transition period and the TCA, but most are likely to be of far less immediate impact on the conduct of procurement. The aim has been to maintain a “steady state”, with minimal changes to the procurement legal framework, at least in the short term. This is because in the medium to long term there will be a potentially radical overhaul of the procurement framework, in both practical and legal terms. The proposed changes are currently the subject of public consultation on the procurement Green Paper, “Transforming Public Procurement”.
People and recruitment
- In order to apply for pre-settled status EU citizens must arrive before 30 June 2021 (pre-cursor to applying for settled status which requires residency in the UK for 5 years).
- A new immigration point’s based system was introduced on 1 January 2021. UK employers will now have to apply to be a licensed sponsor if looking to recruit from the EU and the EU citizen must meet certain criteria.
Corporate Insolvency and Governance Act 2020 (again!)
The Limited Liability Partnership (Amendments etc) Regulations 2021 come into force on 16 February 2021.
The Corporate Insolvency and Governance Act 2020 (Act) creates new measures that are designed to help UK companies avoid insolvency. The Act has put in place provisions around insolvency relief including statutory demands on winding up and moratorium provisions for restructuring. These Regulations make provisions relating to the application of those measures to limited liability partnerships (LLPs). This may be of relevance to your group where you have any joint venture LLPs.
We held our first roundtable for the Senior Independent Director Network in January alongside Savills and Abri. The discussion gave some excellent ‘food for thought’ for those in attendance, and highlighted the valuable role played by SIDs on RP boards. If you have a SID who would like to join the network, or you are considering whether to appoint a SID to your board, do get in touch with us to find out more.
Consumer Regulation Lead - The Regulator of Social Housing has appointed its new consumer regulation lead. Watch this space for proposals relating to the overhaul to consumer standards in due course in line with the Charter for Social Housing Residents: social housing white paper.
Make a date in your diary to join us at our forthcoming webinars:
- Essential Housing Update webinar – Monday 8 February. This webinar will provide an update on some of the important financial and regulatory changes which may impact on you in 2021: NHF 2020 Code of Governance, LIBOR and Consumer Credit Activities.
- The practical guide to ESG – Wednesday 24 February. What is ESG? Our joint webinar with DTP will explain where the term ‘ESG’ originates from, explore the reporting standards and wider agenda that the term encapsulates, the impact on housing associations and consider what it means for different teams such as development, asset management, customer service, governance, finance and procurement.