The Financial Reporting Council (FRC) is consulting on a new Stewardship Code that sets expectations for investor stewardship policy and practice. The Code will focus on how effective stewardship delivers sustainable value for beneficiaries, the economy and society.

The new Code aims to increase demand for more effective stewardship and investment decision-making which is better aligned to the needs of institutional investors’ clients and beneficiaries.

The proposed main changes to the Code include:
• Recognising the importance of ESG factors. The proposed Code now refers to environmental, social and governance (ESG) factors. Signatories are expected to take material ESG issues into account when fulfilling their stewardship responsibilities.
• Purpose, values and culture. Investors must report how their purpose, values and culture enable them to meet their obligations to clients and beneficiaries. This aligns the Code with the UK Corporate Governance Code and encourages embedding behaviour conducive to effective stewardship in the investor community.
• Stewardship beyond listed equity. The proposed Code now expects investors to exercise stewardship across a wider range of assets where they have influence and rights, in the UK and globally.
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Sir Win Bischoff, chair of the Financial Reporting Council said, “The new Stewardship Code will play a key role in complementing the stronger corporate governance provisions that took effect at the start of this year. The FRC conducted extensive outreach in early 2018 to inform this review of the Stewardship Code. It recognises the significant changes in the investment industry and stewardship landscape since the 2012 revision. It sets both higher expectations for stewardship practice and introduces more rigorous public reporting with a focus on outcomes and effectiveness. We believe the changes proposed put it at the forefront of stewardship internationally.”

In preparing the consultation the FRC engaged with 170 members of the investment community and companies, including the largest UK asset managers, pension funds, key international investors and UK listed companies. The FRC and the Financial Conduct Authority (FCA) are also publishing a discussion paper to advance the discussion about what effective stewardship should look like, expectations for financial services firms, and how this can be best supported by the UK’s regulatory framework.

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