The Financial Reporting Council (FRC) has categorised signatories to the Stewardship Code into tiers based on the quality of their code statements.

Of the nearly 300 signatories to the code, more than 120 are in tier 1, an increase from approximately 40 at the beginning of the exercise, said the FRC.

This represents nearly 90% of assets under management of members of the Investment Association.

The UK Stewardship Code aims to enhance the quality of engagement between investors and companies to improve long-term risk-adjusted returns to shareholders.

The FRC said its assessment, which has been published, showed: “Much improved reporting against the Code and greater transparency in the UK market.”

According to the quality of reporting in their statements, the signatories to the code have been categorised into tiers based on the seven principles of the code and the supporting guidance.  The FRC said it was pleased with the positive and constructive response from signatories.

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Quality of descriptions

The assessments focused on the quality of descriptions of signatories’ approach to stewardship and their explanations in accordance with the ‘comply or explain’ basis of the Code.

Over 200 signatories approached the FRC to discuss improving their reporting against the Code.

Asset managers who have not achieved at least Tier 2 status after six months will be removed from the list of signatories as their reporting does not demonstrate commitment to the objectives of the Code.

The FRC said it welcomes contact from signatories, particularly those in Tier 3, to discuss improvements to reporting.

The tiers are categorised 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.

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.

FRC CEO Stephen Haddrill commented: “Constructive engagement between investors and companies is vital for the long-term success of our economy. Investors play a crucial role in encouraging companies to think more about their long-term strategy.”

Haddrill added: “Reporting against the Stewardship Code is not a box-ticking exercise and signatories were encouraged to provide a clear description of their approach to stewardship, with explanations for non-compliance where appropriate. We will be looking for continuous improvement from Code signatories.”

The FRC is the UK competent authority for audit and sets the UK Corporate Governance and Stewardship Codes, as well as UK standards for accounting, auditing and actuarial work.