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Investors are turning up the pressure on companies to improve ethnic and gender diversity on their boards ahead of the annual meeting season, according to an influential shareholder adviser.
The Investment Association (IA) will issue "amber-top" warnings - the second-highest level of alert - to the biggest 350 listed firms if they do not disclose the ethnic diversity of their boards or have a credible action plan to address the issue.
The advisory group, which represents 250 members with £8.5tn under management, is hoping to use the voting power of its members to encourage listed companies to adopt the Parker Review target of having at least one director from an ethnic minority background by the end of 2021.
The IA's institutional voting information service (IVIS), a paid-for service that provides independent information on listed companies, does not make recommendations to investors on how to vote, but uses amber and red tops to highlight areas of concern.
Andrew Ninian, the IA's director for stewardship and corporate governance, said: "The UK's boardrooms need to reflect the diversity of modern-day Britain. With three-quarters of FTSE-100 companies failing to report the ethnic makeup of their boards in last year's AGM season, investors are now calling on companies to take decisive action to meet the Parker Review targets."
The group is also seeking greater progress on gender diversity, by giving a red alert to companies with 30% or fewer female directors. This is an increase on last year's 20% threshold for a red alert.
On executive pay, the group said companies that received government support or raised capital from shareholders during the pandemic should not pay annual bonuses. Many firms have benefited from the government's furlough scheme or the business loan schemes; and 73 firms of the 600-strong FTSE all-share index raised fresh funds from investors between March and November as the Covid-19 pandemic struck.
"Investors also do not generally expect bonuses to be paid if a company has taken government or shareholder support - any company that chooses to do so is expected to provide a clear rationale," said Ninian. The group also warned remuneration committees not to compensate executives for reduced pay last year by adjusting this year's pay packages.
The climate crisis will be another big focal point. This year, companies in high-risk sectors such as transport, energy, banks, airlines, travel and tourism, which do not comply with reporting standards set by the global Task Force for Climate-related Financial Disclosures (TCFD) will, for the first time, receive an amber alert. Investment managers want to see companies reporting on climate-related risks in a consistent, clear and comparable manner. The UK government intends to make climate-related financial disclosures mandatory by 2025. © Photograph: PeopleImages/Getty ImagesThe IA says three-quarters of FTSE-100 firms fail to report the ethnic make-up of their boards at last year's AGM season.