Primary Market Bulletin 46

Newsletters Published: 19/12/2023 Last updated: 19/12/2023

Newsletter for primary market participants

December 2023 / No. 46

About this edition

Welcome to the 46th edition of the Primary Market Bulletin (PMB).

Article 10 UK MAR and ESG stewardship

On 12 December 2022, the FCA released PMB 42 in which we examined the final notice issued by the FCA earlier in the year to Sir Christopher Gent, former Chairman of Convatec Group plc. That final notice concerned unlawful disclosure of inside information, in breach of Article 10 of the EU Market Abuse Regulation (Article 10 and MAR). Following the publication of the final notice, the FCA has received enquiries from different stakeholders in relation to Article 10 in general and also its application in certain specific scenarios.

PMB 42 refers to EU MAR, the legislation in force at the time of conduct under consideration in the case of FCA v Sir Christopher Gent, the remainder of this article considers the current position under UK MAR.

In this article, we address specifically questions raised by certain stakeholders in relation to Article 10 and market conduct issues more generally in the context of shareholder co-operation regarding Environmental, Social and Governance (ESG) stewardship. We have been asked, for example, whether a major shareholder’s voting intentions on significant transactions, influenced perhaps by ESG stewardship concerns, may constitute inside information, thus restricting trading by that shareholder. We have also been asked: whether Article 10 might apply where major shareholders wish to discuss their stewardship plans for particular issuers with other shareholders with similar ESG strategies; and whether the shareholder may or should disclose its voting intentions to the market.

Readers should note that we are unable to give guidance on specific hypothetical scenarios and this article does not purport to do so. The extent to which any engagement between shareholders, or those between a company and its shareholders might contravene UK MAR or raise other market conduct issues will depend on the specific circumstances in any given case. Readers should also note that this article does not address any competition law issues that might arise from ESG stewardship engagement and collaboration. Readers interested in that topic may refer to the guidance titled “Guidance on environmental sustainability agreements” published by the Competition and Markets Authority on 12 October 2023.

Continuing relevance of prior FCA publications

This article is intended to draw attention to existing resources that we consider are relevant to the queries we have received.  In particular, we would like to draw attention to previously published materials on the FCA’s website (or FSA website, as was) that we consider are of continuing relevance and assistance to firms in considering their obligations under the market abuse regime.  Those are:

  1. A letter sent by the FSA to the Association of British Insurers titled “Shareholder engagement and the current regulatory regime” on 19 August 2009 (the ABI letter).

  1. FSA’s Market Watch 20 published on 20 May 2007.

Neither of these publications is currently available on our website but both can be accessed in the national archives and are embedded links in the text above.

Our approach to assessing shareholder engagement

Among other things, both these publications addressed shareholder activism and shareholder engagement and were generally supportive of collective shareholder engagement with the boards of investee companies. Market Watch 20 also gave some clarification about our likely approach to assessing compliance with requirements concerning market abuse where a market participant identifies a possible strategy involving building upon or acquiring a stake in a target company, on the basis of its own intentions and knowledge.

We confirm that the ABI letter and the observations in Market Watch 20 are still relevant to considering issues of shareholder activism, engagement and co-operation. This includes in the context of ESG stewardship. Although there have been legislative changes to the market abuse regime since the publication of the ABI letter and Market Watch 20, not least the introduction of the EU, now UK, MAR, we consider that the principles and clarification on our likely approach as set out in the ABI Letter and Market Watch 20 are still relevant.

In addition, the outcome in the Sir Christopher Gent case does not mark any change in our approach to Article 10 or UK MAR in general.  As stated in PMB 42, it should not inhibit or stifle high quality engagement between companies and their shareholders. Our regulatory requirements should also not prevent collective engagement by institutional shareholders designed to raise legitimate concerns on particular corporate issues, events or matters of governance with the management of investee companies. This includes matters related to ESG considerations. In support of this, we would also draw attention to Recital 19 to UK MAR which states that: 'This Regulation is not intended to prohibit discussions of a general nature regarding the business and market developments between shareholders and management concerning an issuer. Such relationships are essential for the efficient functioning of markets and should not be prohibited by this Regulation.'

Strategy and voting intentions

As stated in Market Watch 20, we are unlikely to consider that market abuse rules have been contravened where a shareholder trades based simply on its own intentions and knowledge of its own strategy. We may reach a different conclusion if other market participants also trade based on the knowledge of that party’s voting intentions or stewardship plans. Although our approach would always be informed by specific circumstances, we do not consider this situation is likely to arise in the context of bona fide discussions between shareholders in respect of ESG stewardship.

Where major shareholders are concerned that their voting intentions or broader stewardship plans concerning an issuer may constitute inside information they should consider the requirements under Article 8 and 14 UK MAR (Insider dealing, Prohibition of insider dealing and of unlawful disclosure of inside information) and Article 10 UK MAR (Unlawful disclosure of inside information).  Where the information is not inside information they may, if they choose to, publish that information. We are aware, for example, that some shareholders or groups of shareholders may choose voluntarily to publish voting intentions for an upcoming “Say on Climate” resolution.

The FCA of course encourages market transparency in ESG matters. We note that asset managers and institutional shareholders may choose to make their broad or sector-specific ESG stewardship programmes public which, in addition to any public benefit, would also reduce the risk of inside information arising from stewardship plans for specific issuers and thus make stewardship collaboration between shareholders more straightforward.

Disclosure of Major Shareholdings

When collaborating, shareholders should bear in mind their disclosure obligations under DTR 5.2.1R(a), which may require shareholdings to be aggregated in certain circumstances. As stated in the ABI letter under the disclosure requirements the aggregation of voting power is necessary where there is an agreement between two or more persons which obliges them to adopt a lasting common policy towards the management of the issuer through the exercise of their voting rights. This is unlikely to include the kind of ad hoc discussions and understandings which might be reached between institutional shareholders in relation to particular issues or corporate events. However, shareholders should be aware of these rules and take advice as necessary when considering collaborative shareholder discussions in respect of ESG (or other) stewardship.

TCFD-aligned disclosures: sponsor procedures

Following the introduction of the Task Force on Climate-Related Financial Disclosures (TCFD) - aligned disclosure requirements for premium listed commercial companies, we have conducted an initial assessment of how sponsors have made changes to their own procedures to assess whether new applicants have procedures in place to enable them to comply with the relevant requirements.

In this article, we outline our initial observations following submissions from a small group of sponsors. Where relevant, we highlight examples of good practice.

Why we conducted this review

In PS20/17, we introduced a climate-related disclosure rule for premium listed commercial companies. This rule requires companies to include a statement in their Annual Financial Report on whether they have made disclosures consistent with the TCFD recommendations and to explain any departures (LR 9.8.6R(8). Our regulatory intervention was based on our stated aim of improving transparency on how listed companies are managing climate-related risks and opportunities and aimed to improve both the quantity and quality of disclosures on climate-related matters across the corporate sector.

In July 2022, we published our preliminary observations following an assessment of the first climate-related disclosures made by companies in line with our rule.  We followed this with further commentary in a number of Primary Market Bulletins, most recently PMB 45. We reminded companies, when considering the level of detail required for the disclosures, to undertake a detailed assessment of their disclosures against the TCFD’s Guidance for All Sectors and, where relevant, the Supplemental Guidance for the Financial Sector and Non-Financial Groups.  We also shared examples of areas for continuing improvement, based on our ongoing monitoring of TCFD-aligned disclosures.

In addition to issuers’ responsibilities to comply with the new climate disclosure rule, sponsors also have a responsibility, where a sponsor service is being provided to a new applicant, to assess whether the issuer has established procedures to enable it to comply with the Listing Rules and the Disclosure Guidance and Transparency Rules (DTRs) on an ongoing basis, including compliance with the TCFD-aligned disclosures. 

We therefore undertook this review to explore what work sponsors have done in relation to assessing issuers’ TCFD-related procedures and controls.  We also took the opportunity to ask wider questions around how sponsors have updated their approach to due diligence in areas where climate related issues may be a material consideration more generally, and also to understand in more detail the work that sponsors perform in relation to the obligation in LR8.4.3R(3) as it relates to their assessment of whether the admission of securities would be detrimental to investors’ interests and to verify the climate-related statements made in prospectuses. 

While this article principally focuses on TCFD-aligned disclosures, in light of wider proposals to reform the listing regime, including the role of sponsors, set out in CP23/10, we have used the findings that are relevant to those aspects of our review to inform our wider policy considerations around the proposed role and expectations of sponsors under our proposed reforms.

What we did

For the aspects of our review relating to TCFD-aligned disclosures, we wrote to a sample group of sponsors and asked them to provide details of the procedures they had put in place to assess whether a new applicant’s procedures would enable it to comply with the relevant obligations in this area under the Listing Rules and the DTRs.  

We also reviewed how each sponsor in our sample group had applied the procedures to a real transaction and assessed each sponsor’s approach to gaining assurance in relation to a new applicant’s systems and controls relating to TCFD-aligned disclosure.

The TCFD-aligned disclosures referred to in this article are a required disclosure for premium listed companies in their Annual Financial Report for financial years beginning on or after 1 January 2021. We recognise that due to the differing financial year ends of the issuers in our sample group, some issuers had made just one TCFD-aligned disclosure and others had yet to make any disclosure.

What we found

Policies, procedures, and approach to the provision of sponsor services

  • We found that most of the sponsors in our sample had made changes to their internal policies and procedures to take account of the increased focus on climate-related matters.  For example, all but one of the sponsors had adapted their approach to the provision of sponsor services by including specific additional due diligence measures relating to the TCFD-aligned disclosure requirements.  These changes involved updating or creating new internal documents to cover the new requirements.  One sponsor did this by making additions to the document that governs transaction oversight, another by creating a guidance document with a suggested approach for sponsor-related obligations arising from PS 20/17, LR 9.8.6(8) and the FCA Technical Notes on TCFD and ESG disclosures (TN 802.1 and TN 801.2).  
  • Some of the sponsors noted that their new materials refer to and draw on relevant FCA publications, such as TN 719.1 and PS 20/17.   
  • About half of the sponsor firms we consulted had updated their risk appetite framework to include an emphasis on climate-related matters, and some had established ESG committees through which all IPOs have to be cleared to assess whether there are any climate-related issues.  
  • One sponsor did not consider the introduction of TCFD-aligned disclosure requirements to have changed how sponsor firms discharge their sponsor obligations when providing sponsor services.

Obtaining comfort on climate related matters and compliance with TCFD-aligned disclosures

  • In terms of the expertise relied upon when assessing TCFD-aligned disclosure procedures we found that most sponsors, particularly the larger organisations, relied on internal expertise, either from specialist teams or using a ‘virtual team’ to bring in relevant expertise from individuals in other areas of the organisation.  
  • Around half of the sponsors consulted referenced some degree of “upskilling” in relation to ESG issues generally, including the introduction of mandatory training for investment banking employees.   
  • Most sponsors had responded to the TCFD-aligned disclosure requirements by expanding the scope of the reporting accountants’ work in relation to the new applicants’ financial position and prospects procedures (FPPP), to include the TCFD-aligned disclosure requirements. Reporting accountants were instructed to consider the issuer’s approach to TCFD-aligned disclosure in all the relevant engagement letters.  In some cases, the IPOs completed before the issuer had to comply with the TCFD-aligned disclosure requirements, in which case we generally saw references to issuers considering how they would implement an appropriate procedure.   
  • Although reporting accountants were in all cases instructed to consider how issuers had implemented (or were going to implement) procedures to deal with the TCFD-aligned disclosure requirements, in most cases we saw only a limited comment on those procedures in the FPPP reports produced pursuant to those instructions.  
  • In most cases, we saw little additional work being specified by sponsors, although we recognise that the inclusion of TCFD requirements as part of the FPPP report or Long-Form Report is relatively new and acknowledge that the nature and extent of the impact of the requirement varies depending on the type of business and operations of the issuer. For example, in relation to issuers in the mining sector, we saw much more detailed work being undertaken by reporting accountants and ESG consultants, and more involvement from sponsors.  
  • Several sponsors referenced their historic relationship with the issuer and their consequent knowledge of the issuer’s operations and disclosure process. This knowledge was considered to provide comfort that the issuer was committed to these processes and able to comply with the applicable Listing Rules and DTRs. 

Commentary on our findings

Given the importance of continuing improvement in the transparency of climate and wider sustainability risks and opportunities, we were pleased to see that sponsors appear to be giving increased focus to climate-related matters.    

We believe it is good practice for sponsors to assess their current policies and procedures to consider whether they need to be updated. This may include specifically considering any additional appropriate measures when seeking to provide assurance in relation to a new applicant’s procedures to support ongoing compliance with the TCFD-aligned disclosure requirements set out in LR9 and appropriately capturing or referencing related requirements or guidance from relevant FCA publications.

For example, sponsors’ systems and controls might helpfully incorporate provisions to assess whether:  

  • a new applicant has appropriate procedures in place to undertake a detailed assessment of its disclosures against the TCFD’s Guidance for All Sectors and, where relevant, the Supplemental Guidance for the Financial Sector and Non-Financial Groups, in determining whether they are consistent with the TCFD’s recommendations and recommended disclosures (LR 9.8.6B G); and  
  • issuers have carried out an assessment to ascertain the appropriate level of detail to be included in the climate-related financial disclosures (LR 9.8.6D G).

We were encouraged to see sponsors considering the climate-related risks relating to new applicant clients.  We believe it is good practice to consider, on a case-by-case basis, how the nature and extent of a new applicant’s climate-related risks might be relevant to the due and careful enquiry required of a sponsor to gain assurance in relation to the issuer’s ability to meet the TCFD-aligned disclosure requirements on an ongoing basis.  For instance, it may be appropriate for sponsors to undertake a deeper analysis of these issues for a mining company than for a financial services issuer.

We also recognise from this work that sponsors continue to upskill in this area, and to consider proportionate ways to gain assurance in an ever-evolving subject area.  We recognise the importance of drawing on subject matter expertise both inside the sponsor’s wider organisation and through the use of other third-party experts as needed. As for other aspects of a sponsor’s work, careful consideration of the quality, nature and scope of third party work relating to TCFD-aligned disclosure systems and controls for a new applicant, with review and challenge where appropriate, can support a sponsor in meeting its obligations. For the purposes of meeting sponsors’ record management requirements under LR8.6.16AR, in cases where a sponsor has considered these aspects carefully and is satisfied that a third-party report provides adequate comfort, it may be appropriate for the sponsor to simply record this judgement, with brief details of any underlying assessment that led to it. 

We expect sponsors to have sufficient skills, knowledge and expertise to be able to interpret and apply relevant elements of the FCA Handbook in the specific context of a listed issuer’s business and operations, including where an understanding of a specialist industry sector may be relevant. This extends to understanding the climate-related implications of a new applicant’s operations, being able to consider the risks for investors and acknowledging that the amount of due diligence required and the verification of disclosure will vary by the nature of the company and its areas of operation. However, in common with the approach to other specialist areas such as the application of accounting standards, this does not mean that we expect sponsors themselves to be experts in TCFD-aligned disclosures or climate reporting.

The nature of the due and careful enquiry that is required in every case may vary, and sponsors should consider if they have sufficient access to relevant expertise, either from internal or external sources, to comply with sponsor obligations in relation to TCFD-aligned disclosures and to assess the adequacy of an issuer’s procedures to meet future TCFD or climate-related reporting obligations.

Sponsors are reminded of the importance of providing appropriate training for staff involved in sponsor services, including in relation to general developments in climate and sustainability related disclosure for listed companies and the technical requirements of the Listing Rules in this regard.


Overall, against a dynamic background of evolving practice in climate-related areas and with issuers and advisers preparing for further developments in international accounting and assurance standards, we were encouraged to see that sponsors are taking steps to ensure their staff and procedures are well positioned to reflect the latest requirements of the Listing Rules.

Whilst we would highlight that we do not expect sponsors to become climate experts in the context of assessing whether an issuer has established procedures to enable it to comply with its obligations on an ongoing basis, we encourage sponsors to consider our findings and recommendations, including whether changes to their own procedures and policies may be appropriate.

We also note that this review did not identify any deficiency regarding record keeping and indeed revealed circumstances where fewer records might reasonably have been kept.

Sponsors may find it useful to monitor and engage, where appropriate, with the FCA’s ongoing policy development on sustainability reporting for listed companies.