UK Stewardship Code Revised
The Financial Reporting Council (FRC) has launched a substantial and ambitious revision to the UK Stewardship Code. The new Code substantially raises expectations for how money is invested on behalf of UK savers and pensioners. In particular, the new Code establishes a clear 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.
Earlier this year I hosted a roundtable with both the FRC and FCA and a number of key stakeholders to gather industry input on the new Stewardship Code. Delighted to see it has now been published. It will play a vital role in supporting stronger #corporategovernance https://t.co/fEDttvM7rx
— Catherine McGuinness (@City_McGuinness) October 24, 2019
The new Code is a vital part of the comprehensive revision of the UK’s world leading corporate governance framework that began with the introduction of the new UK Corporate Governance Code in January 2019.
The new 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. It directly addresses the issues raised by Sir John Kingman’s independent review of the FRC in respect of the previous Code.
Key changes in the new 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. This greater transparency will allow clients to see how their interests are being served.
- 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.
As well as looking after investments in their portfolios, investors and the service providers that support them play an important role as guardians of financial markets. The new Code also expects signatories to work together with regulators and industry bodies to identify and respond to the risk of market and systemic failure.
The new Code will enhance the UK’s position as a destination for long-term, sustainable investment and promotes transparency and integrity in business bringing with it wider benefits for the economy, the environment and society.
The new Code, which takes effect on 1 January 2020, builds on the success of the previous Code, but sets a substantially higher standard, reflecting the changing expectations of investors and the significant developments in sustainable and responsible investment and stewardship since the Code was last revised in 2012.
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.”
The FRC’s 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.”
The FRC’s Chief Executive, Sir 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.”
Total assets under management grew to more than $10 trillion in 2021.
The global alternative asset management firm listed on Nasdaq.
Regulator has proposed sustainability disclosures for fund managers and regulated asset owners.
The consolidated quote system for corporate bonds has raised funds to expand outside the US.
Bond funds saw strongest inflows since 2016.