A number of investors have improved their reporting of how they approach stewardship, according to the Financial Reporting Council (FRC).
The reporting and governance watchdog introduced three tiers of investors based on the quality of their stewardship, encompassing their approach to investments, engagement, and transparency.
While 80 asset managers were assessed as meeting criteria to sit in the highest tier (1), a further 40 sat in the lowest tier (3). Following engagement between those in the lowest tier and the FRC, 20 have improved their reporting and have stepped up to tier 2. The other 20 have chosen to remove themselves from the list of signatories.
As a result, tier 3 has been removed.
“Tiers 1 and 2 show those willing to report transparently on their approach,” stated the FRC. “This allows clients to discuss with asset managers their different approaches to stewardship, therefore ensuring they best meet their needs. The FRC will be looking for continuous improvement from Code signatories.”
The tiers were set as follows:
- Tier 1 – Signatories provide a good-quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary;
- Tier 2 – Signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code; and
- Tier 3 – Significant reporting improvements need to be made to ensure the approach is more transparent. Signatories have not engaged with the process of improving their statements and their statements continue to be generic and provide no, or poor, explanations where they depart from provisions of the Code.
The formal consultation on the FRC’s Corporate Governance Code, being held later this year, will include broad initial questions about its approach to the review of the Stewardship Code.
The consultation will consider how to raise reporting standards and whether the tiers are set at the appropriate level. A further consultation on specific changes to the Stewardship Code will follow in 2018.