The UK’s Financial Reporting Council has launched a revision to the UK Stewardship Code. The new code raises expectations for how money is invested on behalf of UK savers and pensioners.
The Code establishes a benchmark for stewardship as the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
It is part of the revision of the UK’s corporate governance framework that began with the introduction of the new UK Corporate Governance Code in January 2019.
Addressing some of the issues raised by Jon Kingman’s independent review of the FRC, the UK Stewardship Code focuses on protecting the interests of UK savers and pensioners by ensuring that their money is managed responsibly with a new emphasis on creating long-term value and on considering beneficiary and client needs.
Some of the key changes in the code include:
- An extended focus that includes asset owners, such as pension funds and insurance companies, and service providers as well as asset managers. This will help align the approach of the whole investment community in the interest of end-investors and beneficiaries.
- A requirement to report annually on stewardship activity and its outcomes. Signatories’ reports will show what has actually been done in the previous year, and what the outcome was, including their engagement with the assets they invest in, their voting records and how they have protected and enhanced the value of their investments.
- Signatories will be expected to take environmental, social and governance factors, including climate change, into account and to ensure their investment decisions are aligned with the needs of their clients.
- Signatories are now expected to explain how they have exercised stewardship across asset classes beyond listed equity, such as fixed income, private equity and infrastructure, and in investments outside the UK.
- Signatories are required to explain their organisation’s purpose, investment beliefs, strategy and culture and how these enable them to practice stewardship. They are also expected to show how they are demonstrating this commitment through appropriate governance, resourcing and staff incentives.
The new Code expects signatories to work together with regulators and industry bodies to identify and respond to the risk of market and systemic failure.
UK business secretary Andrea Leadsom said: “The Government is committed to making the UK the best place in the world to work and grow a business.
"This Code is an important piece of work by the Financial Reporting Council under its new leadership. It recognises the essential role of effective stewardship in supporting stronger corporate governance, diversity and social environmental priorities. I urge asset managers and owners to lead by example and sign up.”
FRC chair Simon Dingemans said: “This new Stewardship Code marks a step-change in the expectations for investors, their advisors, and how they manage investments for their savers and pensioners.
“It is an ambitious revision that strengthens the UK’s standards of governance, transparency and clear reporting. We are looking for widespread adoption by the investment community, reinforcing the attractiveness of the UK as a place to do business and delivering real benefits to the economy, the environment and society more broadly.”
FRC chief executive Jon Thompson said: “I encourage institutional investors, asset managers and their service providers to sign up to the new Code and demonstrate that they are operating across their businesses to these high standards of Stewardship.”
“The FRC will be holding signatories to account by regular review of adoption of the new Code and the quality of the reporting against its principles. Asset owners and beneficiaries will then be able to see if those investing on their behalf are doing so in accordance with their needs and views. They will also be able to see the impact of their managers’ decisions, particularly in relation to environmental, social and governance issues, including climate change.”
The new code will take effect 1 January 2020. It is the first time the Code has been revised by since 2012.