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Consultation on the revision of the UK Corporate Governance Code

Letter to the Financial Reporting Council, 13 September 2023.

We refer to the Financial Reporting Council’s consultation on the revision of the UK Corporate Governance code. We appreciate the opportunity to contribute our investor perspective. 

Norges Bank Investment Management is the investment management division of the Norwegian Central Bank (Norges Bank) and is responsible for investing the Norwegian Government Pension Fund Global. NBIM is a globally diversified investment manager with 12,429 billion Norwegian kroner at year end 2022, 51,7 billion of which invested in the shares of UK companies. We are a long-term investor, working to safeguard and build financial wealth for future generations.

We recognise the importance of the UK’s Corporate Governance Code in promoting high corporate governance standards in the UK market and beyond, as the UK Code has often been referred by standard setters in other jurisdictions in the development of corporate governance policies and codes. We believe that a key reason for its success has been the focus on best practice and the flexibility provided by the “comply or explain” approach.

We welcome the amendments made to Section 1 to increase the focus on sustainability, by requiring that the board describes in the annual report how environmental and social matters are taken into account in the delivery of the strategy. We recommend that the board reporting on the company’s climate ambitions and transition planning is focused on the governance of such aspects, namely how the board oversees, manages and discloses material climate risks, to avoid any potential overlaps with forthcoming reporting requirements in the UK Sustainability Disclosure Standards. 

We understand the rationale behind the proposal that the Audit Committee is the most appropriate to oversee the company’s approach to sustainability reporting and assurance, in light of its experience and remit over financial statements, internal controls and external audits. We believe it is important that companies retain the necessary flexibility in building experience and governance structures to manage sustainability issues, and that the Code is not prescriptive on the dedicated arrangements for the governance of sustainability. 

Comparable, consistent and reliable sustainability reporting is essential for our stewardship and risk management work. In order for investors and other stakeholders to be able to use this information in a reliable manner, it should be subject to the same internal controls and procedures which are used for financial reporting. For this reason, we agree with the suggestion to replace the world “financial” to “reporting” when controls are reference in the Code, as this will ensure that companies’ risk management and internal controls include sustainability issues.

Regarding directors’ commitments to other organisations, we concur with the FRC’s assessment that specifying in the Code or related guidance a maximum number of board appointments would not be helpful, as such appointments can take many different forms and entail varying time commitments. However, we welcome further transparency on directors’ commitments to other organisations and their capacity to undertake their role effectively. We support the reference to “diversity and inclusion” on corporate boards and the decision to move away from a list of diversity characteristics, aiming to capture wider diversity characteristics; however, we encourage the FRC to maintain a specific reference to gender continue making progress on this issue.

We appreciate your willingness to consider our perspective, and we remain at your disposal should you wish to discuss these matters further.

Yours sincerely,

Carine Smith Ihenacho
Chief Governance and Compliance Officer        

Elisa Cencig
Senior ESG Policy Adviser

Download the letter (pdf)