FRC Review of Corporate Governance Reporting 2025

Why should I read this?

The Financial Reporting Council (FRC) has published its latest Annual Review of Corporate Governance Reporting (Review), providing insights into current trends, best practices, and areas for improvement in reporting against the UK Corporate Governance Code (Code) by listed companies. In this update, we examine the key themes and recommendations from the Review for boards and teams involved in corporate reporting.

Scope and key findings

The Review is based on the review of annual reports from a sample of 100 UK-listed companies, including FTSE 100, FTSE 250, and Small Cap entities. This is the final review of reporting under the 2018 Code as the 2024 Code became effective for financial years beginning on or after 1 January 2025.

1. Emphasis on concise, outcomes-based reporting

The FRC continues to encourage companies to move away from lengthy, boilerplate disclosures and instead focus on concise, outcomes-based reporting. This means that annual reports should prioritise board actions and the impact of those actions, rather than simply restating policies or regulatory requirements.

Companies should streamline the stakeholder engagement sections of the annual report and avoid duplication or generic statements, ensuring disclosures are relevant and material to strategic and governance considerations.

2. Preparation for the 2024 Code and Provision 29

New Provision 29 of the 2024 Code on risk management and internal controls comes into force for periods beginning on or after 1 January 2026. Over half of companies reviewed are already preparing for Provision 29, with many updating internal control frameworks in preparation for the new requirements. Boards will be expected to provide a declaration on the effectiveness of material controls and describe any material weaknesses and remedial actions.

3. Use of explanations and flexibility

The Code’s “comply or explain” approach remains central, and allows for well-reasoned, transparent explanations for departures from specific provisions. Overall, a declining number of companies reported departures from Code provisions (25 in 2025, down from 28 in 2024). The most common departures related to audit committee composition, chair independence and tenure. Companies are encouraged to clearly articulate the rationale, duration, and governance safeguards for any departures.

4. Board leadership and company purpose

Reporting on culture continues to improve, with more companies describing how culture is embedded and monitored. However, the FRC calls for greater clarity on how directors actively promote and model desired behaviours that reflect the company’s values. Effective reporting on culture should link board decisions to cultural outcomes and demonstrate alignment between purpose, values, strategy, and culture.

Turning to shareholder and wider stakeholder engagement, the Review found that most companies report board-level engagement with shareholders beyond the AGM, but many disclosures remain generic and lack detail on outcomes or board decision-making that was influenced by engagement.

Workforce engagement remains a focus for companies, with most companies adopting a designated non-executive director as the means of doing this. However, the FRC urges more detail on the effectiveness and outcomes of the chosen mechanism.

5. Diversity and inclusion

Disclosure of diversity and inclusion (D&I) policies and progress remains strong, with most companies linking D&I to broader strategy and reporting progress against targets.

The FRC highlights the importance of transparency in reporting on board and senior management diversity, referencing external frameworks such as the FTSE Women Leaders Review and Parker Review.

6. Audit, risk, and internal controls

The Review notes that engagement with the ‘Audit Committees and the External Audit: Minimum Standard’ is increasing, particularly among larger companies, although insightful reporting remains limited.

Audit committees are expected to provide clear disclosures on auditor tenure, tendering processes, and the effectiveness and independence of both internal and external audit functions.

Principal risks are generally well described, with many companies providing specific and relevant disclosures. The FRC encourages companies to consolidate risk and internal control reporting, avoid repetition, and provide clear explanations of principal and emerging risks, mitigation strategies, and the board’s oversight.

7. Cybersecurity and AI

Cybersecurity is now widely recognised as a principal risk, with 66% of companies reporting board or committee-level oversight and 85% including it as a principal risk. Boards are expected to engage meaningfully with cybersecurity issues and ask the right questions.

86% of companies in the scope of the Review mentioned Artificial Intelligence (AI) in the annual report, with many providing detailed insights of their governance, including board-level engagement with opportunities and risks. The Review emphasises that boards should have a clear view on the responsible development of AI and the associated governance.

8. Remuneration

Remuneration reporting is generally clear and transparent, with companies disclosing committee activities, use of discretion, and alignment with long-term shareholder interests.

Malus and clawback provisions are widely established, with some companies updating these in response to the 2024 Code.

Companies may also want to note that the Investment Association (IA) has recently published its annual Letter to remuneration Committee Chairs. The letter highlights a few areas where investors feel the implementation of the 2024 Principles of Remuneration can be improved.

Looking ahead to the 2026 AGM season, IA members reiterate the importance of remuneration committees clearly articulating the key decisions they have made during the year, particularly demonstrating a strong link between pay and performance. Given the geopolitical uncertainties and economic impacts on businesses, many investors want to understand how remuneration committees are considering the wider stakeholder experience when making executive pay decisions.

What’s next?

Listed companies that report in line with the Code should consider the Review and any actions they may need to take to meet best practice. Steps to consider for reporting in 2026 include:

• Review and streamline annual report disclosures, focusing on board actions, outcomes, and material issues.
• Prepare for the enhanced requirements of the 2024 Code, particularly Provision 29, by reviewing internal control frameworks. Early engagement with the new Code requirements, particularly around risk management and internal controls, will support high-quality, compliant, and effective corporate governance disclosures.
• Ensure explanations for any departures from the Code are clear, specific, and well-justified.
• Enhance reporting on culture, stakeholder engagement, and diversity by providing concrete examples and outcomes.
• Ensure robust oversight of cyber, AI and emerging risks.