FRC: Revised and strengthened UK Stewardship Code sets new world-leading benchmark
24 October 2019
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, according to the FRC.
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:
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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.
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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.
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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.
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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.
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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.
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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.
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UK Stewardship Code 2020 on FRC
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