Teresa Huang and Eddie Shih
I. Highlights of the amendments to the Regulations Governing Information to Be Published in Annual Reports of Public Companies
To promote “Corporate Governance 3.0 – Sustainable Development Roadmap” and align with international standards, the Financial Supervisory Commission (hereinafter, the “FSC”) amended the Regulations Governing Information to Be Published in Annual Reports of Public Companies (hereinafter, the “Regulations”) on November 30, 2021 with the following three major highlights:
1. Enhanced information disclosure concerning environmental, social, and governance (hereinafter, “ESG”) (Article 10 of the Regulations)
To enhance the disclosure of environmental and social information, the wording “corporate social responsibility” (i.e., CSR) is changed into “sustainable development,” and to further enhance the disclosure quality of ESG information, related disclosure guidelines, such as greenhouse gas emissions, water consumption, wastes, percentage of female employees and high-ranking supervisors, occupational hazard data, etc., are additionally formulated.
To enhance the disclosure of corporate governance information, the disclosure covers the following aspects:
(1) Functions of the board of directors: The diversity and independence of the board of directors shall be specifically indicated. For the former, information such as the age, appointment criteria, professional qualifications, experiences, etc., should be disclosed, while information such as the percentage of independent directors, the independence of the board, the independence of the independent directors, etc., should be specified for the latter.
(2) Functional committees: The objections, reservations, or major recommendation items of independent directors in the audit committee shall be disclosed, and the professional qualifications, experiences, and independence of the members of the compensation committee shall be specifically specified. If a nomination committee is set up, its composition and operations shall be disclosed.
(3) Certified public accountant’s fees: The amounts of individual audit fees or non-audit fees shall be separately disclosed, and the contents of non-audit services shall be specifically specified to enhance the independence of accounting firms and auditors. In particular, the contents of non-audit services include tax certification, other financial consulting and advisory services, etc.
The best referential practice examples provided by the Corporate Governance Center of Taiwan Stock Exchange Corporation may be referenced for the above information disclosure requirements.
2. Enhanced information disclosure concerning the management of cyber security (Articles 18 and 20 of the Regulations).
To strengthen the management of cyber security, the framework, policies, specific plans, and the resources engaged (e.g., the total number of personnel, number of meetings held, insurance coverage, etc.) of risk management shall be specified, and the impact of cyber security risks on finance and operations and the coping measures thereof, as well as the losses suffered as a result of major cyber security incidents, the possible impact (e.g., on operations and goodwill), and the coping measures, shall be disclosed.
3. Enhanced timeliness in the information disclosure in the annual report for the shareholders’ meeting (Article 23 of the Regulations)
In order to facilitate an investor’s reference in voting on various proposals at shareholders’ meetings, listed and OTC-traded companies with (1) paid-in capital of NT$10 billion or more or (2) a combined foreign and China’s shareholding ratio of 30% or more are required to upload the electronic file of the annual report for the shareholders’ meeting to the information disclosure website designated by the FSC 14 days prior to the date of the shareholders’ meeting.
II. Matters to be subsequently observed
In recent years, ESG issues have received much attention from governments and enterprises. Since 2020, the FSC has launched the “Green Finance Action Plan 2.0” and “Corporate Governance 3.0 – Sustainable Development Roadmap,” which aim to create a sound ESG ecology by focusing on financial mechanisms and corporate governance respectively.
In addition to the Regulations introduced in this article, the FSC has just pre-announced the amendments to the “Regulations Governing Information to Be Published in Annual Reports of Financial Holding Companies,” the “Regulations Governing Information to Be Published in Annual Reports of Banks,” and the “Regulations Governing Information to Be Published in Annual Reports of Bills Finance Companies” on December 25, 2021 also with an aim to enhance the sustainable development of the financial industry through the disclosure of ESG information. In addition, the FSC released a newsletter on November 11, 2021 to announce that the “CSR Report” for 2022 will be renamed as the “ESG Report”, expand the scope of third-party verification for such reports, and specifically stipulate the contents that require verification.
This shows that the FSC will continuously take measures to strengthen the sustainable development ecology of the capital market in Taiwan, and listed and OTC-traded companies are advised to pay close attention and be prepared as early as possible.