The Financial Reporting Council (FRC) has launched its consultation on significant updates to the UK Stewardship Code, with key proposals including a “revised and enhanced” definition of stewardship emphasising the need to create long-term “sustainable value” for clients.
For the first time in the Code, there are separate dedicated principles for different service providers, including proxy advisers and investment consultants, designed to help promote insightful reporting on how they support stewardship activity throughout the whole investment chain.
Additionally, the Code will be supported by “targeted guidance” to help indicate the range of information that signatories might wish to include in their reporting. This includes a streamlined reporting process, separating policy and activity disclosures to reduce reporting burdens.
The consultation, which runs until 19 February 2025, follows engagement with over 1,500 stakeholders during 2024 and four years of analysis of reporting against the 2020 Code. The FRC said it was encouraged by the high level of engagement ahead of this launch, which has ensured the proposals “are focused on long-term sustainable value for clients and beneficiaries” while taking a “proportionate approach” to reporting requirements.
While the code is voluntary, it is designed to compliment other regulatory requirements from bodies such as the Financial Conduct Authority, the Pensions Regulator and the Department for Work and Pensions.
Richard Moriarty, CEO of the FRC, commented: “The UK Stewardship Code plays a vital role in promoting long-term value for millions of people who trust their hard-earned savings and pensions to the investment community in order to provide for their future. This consultation marks an important evolution of the Code, ensuring it maintains high standards of stewardship in a manner that continues to support UK growth and is more proportionate. In doing so, we aim to help enhance the attractiveness of the UK as a leading global destination for capital and its management.
“We are committed to maintaining the UK’s position as a global leader in stewardship standards and activities. Our proposals reflect extensive stakeholder engagement the FRC has undertaken during 2024 and aim to reduce unnecessary reporting burden while ensuring savers and pensioners can better understand how their money is being managed on their behalf to create long-term sustainable value.”
The FRC will host a series of engagement events during the consultation period to gather further feedback from stakeholders on these proposals and the updated Code is expected to be published later in 2025 for implementation, with the first reporting cycle beginning in 2026.
Reaction
Reacting to the consultation launch, Lindsey Stewart, director of investment stewardship research and policy at Morningstar Sustainalytics, noted it was interesting to see the FRC’s definition of stewardship shift to ‘sustainable value’ focused on clients and beneficiaries, dropping explicit references to ‘the environment and society’.
“Although some might see this as a lowering of intention regarding sustainability, it’s fair to say the proposed new definition allows greater flexibility of application for signatories with a wide range of views on what priority sustainability issues should be given. This will be particularly important to many of the signatories based in the US where the pressure to demonstrate client focus on financial outcomes over societal ones has never been higher.”
Oscar Warwick Thompson, head of policy and regulatory affairs at UKSIF, went further, saying any move to significantly water down or overly narrow the definition of stewardship in the Code would “send the wrong signals”.
“The Stewardship Code has been a vital contributor to the UK’s longstanding role as the world’s ‘quality’ market and formed part of our attractiveness for international investment. Its international impact is also positive, shaping stewardship codes and regulatory practices across many jurisdictions overseas. As the FRC considers the future of the new Code, those existing strengths must remain central.”
Fergus Moffatt, head of UK policy at ShareAction, agreed: “It’s [the UK Stewardship Code] designed to make sure investors are safeguarding the interests of savers and asset owners through the influence they have over the companies they invest in. This must include consideration of the impact of companies driving dangerous levels of global heating, inequality or poor public health in the future savers will retire into.
“This is why we are calling on the FRC to scrap its new definition and stick to its original, which makes clear reference to the fact investors have a role to play in addressing these interrelated challenges, placing climate change and social impacts at the heart of effective stewardship.”
