Corporate Governance Codes in the UK

Introduction

Climate change and nature loss pose material, systemic and financial risks to corporations and their shareholders.  In some circumstances, they might also provide opportunities.

This brief provides an overview of the principles and provisions in the UK Corporate Governance Code that support climate and nature-related action in the board room.

This brief is part of the Corporate Climate Governance Navigator that shares best practice, standards and guidelines in corporate climate governance for board directors across the world, including mandated requirements at jurisdictional level. The actions proposed draw on international frameworks including the OECD’s Principles on Corporate Governance and Climate Change and Corporate Governance Report, the IFC’s Climate Governance Approach, and the Principles for Effective Climate Governance developed by the World Economic Forum, which form the foundation of the Climate Governance Initiative’s (CGI) work. This country brief can be reviewed alongside the UK Directors’ Duties Navigator where board directors will find further guidance on the UK legal and regulatory landscape regarding climate change and nature loss.

About the UK Corporate Governance Code  

The UK Corporate Governance Code (UK Code), issued by the Financial Reporting Council (FRC) and last updated in January 2024, is applicable to all companies listed on the London Stock Exchange, except for listed investment companies for which the AIC Code applies. The UK Listing Rules mandate listed companies to follow the provisions of the Code or, if departing from the provisions, to explain how the organisation’s alternative arrangement is more appropriate and beneficial for upholding good corporate governance standards.  

Principles and provisions in the UK Code that support climate and nature action  

The table below highlights relevant board-level action including questions to ask in the boardroom relating to the climate and nature provisions of the UK Code. These are grouped to align with the six parameters of IFC’s Climate Governance Approach and the eight Principles for Effective Climate Governance published by the World Economic Forum.

The above table highlights provisions in the UK Code that direct boards to take practical steps to advance climate and nature-related engagement and action. The steps and questions can be used as a starting point to gradually strengthen the board’s engagement in these areas. The tone set at the top of the organisation is of great importance to the culture of the whole organisation, and boards are uniquely positioned to drive positive action on climate change and nature loss through the lens of corporate purpose and strategy.

For easy reference please find the UK Corporate Governance Code (2024) and the UK Financial Reporting Council FRC guidance on ESG reporting (2023).

Climate governance expert David Carlin shared his perspective on how Boards in the UK are responding to the principles and provisions of the UK Code. Discover his insights here:

Best practice examples of international frameworks for corporate governance on climate and nature

• The OECD Principles on Corporate Governance (2023) support policy makers to evaluate and improve the legal, regulatory, and institutional framework for corporate governance. They also provide guidance for stock exchanges, investors, corporations, and others that have a role in the process of developing good corporate governance. The Climate Change and Corporate Governance Report provides an overview of main trends and issues related to the implications of climate change for corporate action. 
• International Finance Corporation has developed the IFC’s Climate Governance Approach: The IFC Climate Governance tip sheet: Equipping Corporate Boards to Mitigate Climate Risks and Seize Climate Opportunities presents the business case for climate governance and offers guidance to assist  Board directors in identifying and overseeing climate-related risks and opportunities. The tip sheet provides advice on incorporating climate into strategy deliberations and identifying, monitoring, and responding to climate-related issues. The IFC Climate Governance Progression Matrix helps test and assess your boards’ maturity when it comes to Climate Governance and support board directors in identifying and overseeing climate-related risks and opportunities. It provides practical and progressive climate-related actions for each of the six parameters of the IFC Corporate Governance Approach: Commitment, Board Structure and Function, Control Environment, Disclosure and Transparency, Minority Shareholder Treatment and Governance of Stakeholder Engagement. 
• The Principles for Effective Climate Governance published by the World Economic Forum (2023) help you, as a board director, to holistically address climate opportunities and risks, and align global climate goals with the organisation’s purpose, values and long-term prosperity. It provides an overview of global climate policy, science and economics, an overview of trends related to regulation and disclosure, and points at implications for corporate boards. It provides 8 guiding principles for effective climate governance on corporate boards.
• The Directors’ Duties Navigator: Climate Risk and Sustainability Disclosure issued by the Climate Governance Initiative (2024) supports directors to make informed decisions and understand their legal duties regarding how to manage that risk and understand the broader climate-related regulatory landscape in which they operate. The Navigator provides information on over 30 jurisdictions on the following topics: Government and regulatory approaches to climate change, Sustainability and climate-related disclosure requirements, Liability risks for companies and directors and practical tips for directors.