The UK Corporate Governance Code 2024: changes from a sustainability and D&I perspective

The Financial Reporting Council’s (FRC) revisions to the Corporate Governance Code (the Code), which updates the 2018 Code, will take effect from 1 January 2025[1]. The changes to the Code’s Principles and Provisions include a number of updates that will require boards to consider sustainability in more depth, as well as D&I as part of their governance processes. 

The updated Code is accompanied by the FRC’s Corporate Governance Code Guidance (the Guidance) which contains non-binding suggestions of good practice to support directors and their advisors in applying the Code. 

What are the changes?

The Code includes a number of changes from a sustainability perspective, including: 

• Governance reporting: Principle C has been rewritten to place more emphasis on outcome-based governance reporting. According to the Guidance, the board should avoid “boilerplate reporting” and instead explain the impact of the decisions they have made on the company. The Guidance also requires that companies report how their “actions and other observable outcomes of their decisions align with the company’s strategy and objectives.” This is in line with updated Principle A, which has been amended to include an explicit requirement for the board to ensure that the necessary policies and practices are in place for the company to meet such objectives and measure its performance against them. This is in addition to the existing requirements relating to company resources.
   
• Risk management: New Provision 29 (for accounting periods beginning on or after 1 January 2026) introduces a requirement to provide in the annual report a declaration of effectiveness of the company’s material controls for monitoring the company’s risk management and internal control framework. These controls include financial, operational, reporting and compliance controls; and while sustainability is not mentioned explicitly, it may be affected by them. In addition, the amended Principle O requires that the board is responsible for not just establishing, but also maintaining, the effectiveness of any risk management and internal control frameworks. 
   
• Culture: Provision 2 has been amended to require the board to assess and monitor “how the company’s desired culture has been embedded”. The Guidance encourages boards to foster a “positive culture” based on “transparency, trust, respect and inclusion” (for example, by having effective whistleblowing policies). In line with the unchanged Principle E, boards should periodically reflect on whether the company’s culture supports its long-term sustainable success. 
   
• Sustainability committees: Paragraphs 142 – 150 of the Guidance emphasise how companies may find it helpful – but are not required – to form a sustainability committee, which could help with monitoring and meeting ESG targets. The Guidance provides examples of the role they could play, such as considering taking responsibility for developing, reviewing and/or monitoring sustainability reporting. Where appropriate, a sustainability committee could also review or make recommendations to the remuneration committee in relation to metrics for sustainability components for the short and long term-based incentives.
   
• Supply chains: With respect to supply chains, the Guidance encourages companies to seek the views of their suppliers – for example, through a 360-degree feedback programme. This may have wider relevance for companies operating in the EU, where there is already an ongoing legislative shift towards increased supply chain due diligence. Boards may wish to take into account the findings of the FRC’s 2022 research, ‘Modern Slavery Reporting Practices in the UK’ when considering their modern slavery statement. 

For more information on this topic, last year we published an article on Tulipshare’s shareholder proposal urging Nike to prevent human rights abuses in its supply chain, which highlights the need for effective supply chain management. 

There are also changes to the Code which expand the requirements from a D&I perspective, including: 

• Culture: The list of specific diversity characteristics in Principle J has been replaced with a more wide-ranging reference to “diversity, inclusion and equal opportunity”. Similarly, Provision 23 has been amended to reflect the broad nature of D&I strategies – it now refers to “initiatives” as well as policies. The Guidance reiterates that diversity of skills, background and personal strengths is “an important driver of a board’s effectiveness.”
   
• Board composition: The Guidance encourages boards to have a “diverse executive pipeline” and for companies to provide training, recruit talent from diverse backgrounds, and make commitments to increase diversity. The Guidance also stresses the importance of diversity of “personal attributes”, for example by ensuring that the board is comprised of individuals with a range of skills.  

What you can do

While none of the changes to the Code relating to sustainability and D&I are groundbreaking, achieving the shifts in governance structures, culture, supply chain and board composition can take time to enact, so there is benefit in starting early and marrying up the changes with wider business strategy. 

[1] On and after 1 January 2026 in relation to Provision 29 of the Code