Corporate governance

The Board is committed to achieving high standards of governance commensurate with the size and stage of development of the Company. As an AIM-listed company, the principles of the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) will continued to be adopted taking in to account the stage of development, resources available and the size of the company. The QCA Code identifies 10 principles to be followed to deliver growth in long-term shareholder value by ensuring that the management framework is efficient, effective and dynamic, supported by good stakeholder communication to promote confidence and trust. The decision to use the QCA Code was last reviewed in February 2021, ahead of the publication of our Annual Report & Financial Statements for 2020.

The sections below describe how the 10 principles of the QCA Code are applied to deliver medium- to long-term success without stifling innovation and entrepreneurial spirit, together with any areas of non-compliance.

Establish a strategy and business model that promote long-term value for shareholders

The principal objective is to develop alkaline fuel cell and related technologies and bring them to the global market in high performance and zero emission modular power generation equipment.

Our target customers will be committed to meeting net zero-carbon goals and operate in either

• Premium priced electricity markets, typically off-grid or near-grid applications, such as EV charging, islands and remote communities, mining and construction, or
• Suitable large scale industrial applications where hydrogen is vented.

The strategy, objectives and business model are developed by the executive directors and the senior management team, and then approved by the Board. The management team, led by the Chief Executive Officer, is responsible for implementing the strategy and managing the business at an operational level.

To accelerate the delivery of the strategy and grow shareholder value, long term relationships with strategic supply chain and distribution channel partners have been concluded. New partners are continuously being reviewed with the objective to access new technologies or markets that will deliver sustainable growth or improve our products’ competitive position.

Seek to understand and meet shareholder needs and expectations

AFC Energy seeks to maintain a regular dialogue with both existing and potential shareholders in order to communicate its strategy and progress, and to understand the needs and expectations of shareholders.

Beyond the Annual General Meeting, the Chief Executive Officer, Chief Financial Officer and, where appropriate, other members of the senior management team, meet regularly with investors and analysts to provide them with updates on the business and to obtain feedback regarding the market’s expectations of AFC Energy.

Where appropriate we implement the findings of this invaluable engagement and take feedback into consideration in our decision-making process.

AFC Energy’s investor relations activities encompass dialogue with both institutional and private investors.

The Board also endeavours to maintain a dialogue and keep shareholders informed through its public announcements and Company website. AFC Energy’s website provides not only information specifically relevant to investors (such as the Company’s annual report and accounts, investor presentations, regulatory announcements and share price information), but also information regarding the nature of the business itself: the technology; key projects; the background to AFC Energy’s target markets; and non-regulatory press releases.

The Annual General Meeting of the Company, normally attended by all Directors, provides the Directors with the opportunity to report to shareholders on current and proposed operations and developments, and also enables shareholders to express their views of AFC Energy’s business activities. Shareholders are encouraged to attend and are invited to ask questions during the meeting and to meet with the Directors after the formal proceedings have ended.

The Board intends to include the detailed results of shareholder voting in its announcements to the market.

Take into account wider stakeholder and social responsibilities and their implications for long-term success

The technologies and products being developed have a strategic role in meeting net zero-carbon targets. To be successful we must not only make our customers aware of our solutions but also Government and other policy makers so that a regulatory and fiscal system is created whereby early adoptors of our technology are incentivised. To this end we seek to actively participate in trade associations, global lobbying groups and Government forums.

The Board is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. These include AFC Energy’s employees, clients, suppliers and shareholders. The Company’s operations and working methodologies aim to balance the needs of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of AFC Energy for the benefit of its members as a whole. AFC Energy endeavours to take account of feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are is consistent with the Company’s longer-term strategy.

The Company takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible. Through the various procedures and systems it operates, AFC Energy ensures full compliance with health and safety and environmental legislation relevant to its activities and is currently undergoing a programme to become ISO 9001, 14001 & 20400 certified.

Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board is responsible for the systems of risk management and internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk, and provide reasonable but not absolute assurance against material misstatement or loss. Through the activities of the Audit and Risk Committee, the effectiveness of these internal controls is reviewed annually. The results of the annual review of risks and uncertainties is published in the annual report.

A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. This budget is maintained and updated where required throughout the year. Performance against the budget and forecasts is reviewed by the management team on a monthly basis and by the Board at each Board meeting.

The Company maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Company. The insured values and type of cover are comprehensively reviewed on a periodic basis.

Maintain the Board as a well-functioning, balanced team led by the Chair

The objective is to maintain a Board balanced between Executive and Non-Executive Directors with an appropriate mix between technology, engineering, governance and commercial experience. The Board includes an independent Non-Executive Chairman who is responsible for leadership of the Board and ensuring all aspects of its role.

All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and will continue to seek re-election at least once every three years.

The Board is responsible to the shareholders for the proper management of the Company and meets at least six times a year to set the overall direction and strategy, and to review operational and financial performance. All key operational and investment decisions are subject to Board approval. To assist the Board in its responsibilities, three focused sub-committees, chaired by Non-Executive Directors, have been implemented. These committees are Audit, Nominations and Remuneration and Technology

A summary of Board and Committee meetings held is published in the annual report.

The Board considers itself to be sufficiently independent and adheres to the QCA Code recommendation that a board should have at least two independent Non-Executive Directors.

Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities

The Board considers that the Non-Executive Directors are of sufficient competence and calibre to add strength and objectivity to its activities, and bring considerable experience in scientific, operational and financial development of clean technology products and companies.

The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Company.

The Chairman, in conjunction with the Company Secretary, ensures that the Directors’ knowledge is kept up to date on key issues and developments, its operational environment and the Directors’ responsibilities as members of the Board.

Directors’ service contracts or appointment letters and the terms of reference of the sub-committees of the Board make provision for a Director to seek personal advice in furtherance of his or her duties and responsibilities.

Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Directors are evaluated each year by way of peer appraisal. The appraisal seeks to determine the effectiveness and performance of each member with regards to their specific roles as well as their role as a Board member in general.

The appraisal system seeks to identify areas of concern and make recommendations for any training or development to enable the Board member to meet their objectives which will be set for the following year. The appraisal process will also review the progress made against prior year targets to ensure any identified skill gaps are addressed.

Board performance is subject to external review to drive continuous improvement in its operation.

As well as the appraisal process, the Board monitors the Non-Executive Directors’ independence to ensure that a suitable balance of independent Non-Executive and Executive Directors remains in place.

The Board may use the results of the evaluation process when considering the adequacy of the composition of the Board and for succession planning. Succession planning is formally considered annually, in conjunction with the appraisal process.

Promote a corporate culture that is based on ethical values and behaviours

The Board seeks to maintain the highest standards of integrity and probity in the conduct of the Company’s operations. These values are enshrined in the written policies and working practices adopted by all employees. An open culture is encouraged, with regular communications to staff regarding progress and staff feedback regularly sought. Senior management regularly monitors the internal cultural environment and seeks to address any concerns that may arise, escalating these to Board level as necessary.

AFC Energy is committed to providing a safe environment for its staff and all other parties for which the Company has a legal or moral responsibility in this area. The Company has a Health and Safety policy which is enforced rigorously.

Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board has overall responsibility for promoting the success of the Company. The Executive Directors have day-to-day responsibility for the operational management of the activities. The Non-Executive Directors are responsible for bringing independent and objective judgment to Board decisions.

There is a clear separation of the roles of Chief Executive Officer and Non-Executive Chairman. The Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and ensuring the Non-Executive Directors are properly briefed on matters. The Chairman has overall responsibility for corporate governance matters. The Chief Executive Officer has overall responsibility for implementing the strategy of the Board and managing day-to-day business activities. The Company Secretary is responsible for ensuring that Board procedures are followed, and applicable rules and regulations are complied with.

The Audit Committee meets formally twice a year and at other times if necessary and has responsibility for, amongst other things, planning and reviewing the annual report and accounts and interim statements, involving where appropriate the external auditors. The Committee also approves external auditors’ fees and ensures the auditors’ independence as well as focusing on compliance with legal requirements and accounting standards. It is also responsible for ensuring that an effective system of internal control is maintained. The ultimate responsibility for reviewing and approving the annual financial statements and interim statements remains with the Board. The Company’s external auditors are invited to attend meetings of the Committee on a regular basis.

The Remuneration Committee, which meets as required, but at least once a year, has responsibility for making recommendations to the Board on the compensation of senior executives and determining, within agreed terms of reference, the specific remuneration package for each of the Executive Directors. It also makes recommendations to the Board concerning employee incentive schemes, including setting performance conditions for share options granted under the schemes.

The Remuneration Report is published annually in the financial statements.

The Technical Advisory Board, which meets at least twice a year, has responsibility for planning and reviewing the research and development pipeline in order to advise the Board on allocation of internal resources and progress on set objectives.

Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Board places a high priority on regular communications with its various stakeholder groups and aims to ensure that all communications concerning the activities are clear, fair and accurate. AFC Energy’s website is regularly updated with new Company announcements and details of forthcoming presentations and events.

The results of voting on all resolutions in future general meetings will be posted to AFC Energy’s website, including any actions to be taken as a result of resolutions for which votes against have been received from at least 20% of independent shareholders.