FRC removes Tier 3 categorisation for Stewardship Code signatories

03 August 2017

Last year the FRC categorised signatories to the Stewardship Code into tiers based on the quality of their Code statements. Over the past 18 months, the majority of signatories significantly improved their statements, but some remained in Tier 3, meaning their reporting required further improvement.

The tiers were 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.

When the tiers were published in November 2016, 80 asset managers were assessed as Tier 1 and 40 as Tier 3. Tier 3 asset managers were given a period of time to improve their reporting or be removed from the list of Code signatories. The FRC engaged with Tier 3 signatories and about 20 improved their statements to Tier 1 or Tier 2 standard, whilst the other half chose to remove themselves from the list of signatories. The Tier 3 category has now been removed.

Tiers 1 and 2 show those willing to report transparently on their approach. This allows clients to discuss with asset managers their different approaches to stewardship, therefore ensuring they best meet their needs. The FRC will be looking for continuous improvement from Code signatories.  

The formal consultation on the FRC’s Corporate Governance Code, being held later this year, will include broad initial questions about its approach to the review of the Stewardship Code. It will consider how to raise reporting standards and whether the tiers are set at the appropriate level. A detailed consultation on specific changes to the Stewardship Code will follow in 2018.

Full press release

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