The Financial Reporting Council first published the UK Stewardship Code in 2010 to develop and encourage best practice stewardship of UK listed companies by institutional investors.
Organisations who wish to become signatories to the code must produce a Stewardship Report, demonstrating how they have applied its Principles in the previous 12 months. Existing signatories must continue to apply the code and update their reporting annually—renewal of signatory status is not automatic.
Signatories include asset managers, asset owners and the service providers that support them. The FRC later revised the code in 2019 to introduce more rigorous reporting requirements and encourage asset owners and asset managers to integrate stewardship responsibilities into investment processes.
The FRC continues to use the code as a framework for signatories to provide evidence of the activities and outcomes of their stewardship to meet the needs of their clients and beneficiaries.
In its review, the FRC is satisfied with the signatories’ effective stewardship reporting and the growth of the code’s influence. The number of signatories nearly doubled from 125 in September 2021 to 235 in September 2022, with a total of £40.7trn in assets under management.
Reflections on 2022 applications
In its review, the FRC acknowledges that the quality of signatories’ reporting across several areas has improved, including in their activity and outcome reporting on engagement, collaboration and escalation; their contributions to addressing market-wide and systemic risks and improving the functioning of financial markets; and monitoring and holding third parties, such as asset managers and service providers to account.
The FRC’s review makes positive observations regarding the signatories’ increased transparency of their organisational purpose, citing many examples of good reporting on stewardship in asset classes outside of listed equity, such as fixed income and real estate.
However, the FRC seeks to align signatories’ reporting of their organisations’ activities and outcomes more closely with the code’s definitions of engagement (Principle 9), collaboration (Principle 10), escalation (Principle 11) and exercising of rights and responsibilities (Principle 12) to ensure reporting is fair, balanced and understandable, and to improve comparability across reports and organisations. To that end, the review provides case study examples of good practice engagement to underpin its recommendations for 2023 signatory applications.
Rights and responsibilities
The FRC encourages all signatories to provide both visual representations of quantitative information and high quality, informative qualitative case studies of engagement activity across asset classes from all signatories, with more examples expected from larger asset managers.
The FRC expects the quantitative information to identify key themes and identified patterns, and the case studies of engagement activity across asset classes to identify specific objectivities, activities and outcomes.
Signatories are encouraged to disclose the rationale behind their choice of external assurance for reviewing stewardship policies and consider what assurance is appropriate in future to reassure their clients and governing bodies of any greenwashing concerns.
Signatories are encouraged to hold their agents to account where their stewardship policies are not followed. The FRC encourages indirect investors to monitor their external managers or service providers who make investments and use examples to explain how external managers have met their expectations—or to show how they have held them to account if they have not.
The FRC has introduced new application deadlines for 2023.
• The deadline for new and renewal applications from asset owners has been extended from 30 April 2023 to 31 May 2023 to accommodate the challenge of asset owners sourcing information from their asset managers and service providers to show the activities and outcomes undertaken on their behalf.
• The FRC will only accept renewal applications from existing signatories in October 2023 and will not accept any new applications or reapplications during this period, allowing the FRC Stewardship team to conduct its planned annual review of the regulatory framework for stewardship by engaging with stakeholders and consulting on the Code.
Click here for a copy of the Review of Stewardship Reporting 2022
Click here for a copy of the Review of Effective Stewardship Reporting 2021
Click here for a list of signatories to the UK Stewardship Code
This article was produced in association with White & Case UK’s Public Company Advisory team. Read the original alert here.