The Financial Reporting Council (FRC) has released details of its update to the UK Stewardship Code. While some proposals from the consultation have been adopted, some financial services experts remain concerned that the 2026 Stewardship Code represents a step down from the high standards set by the 2020 Code.
The previous definition of Stewardship in the 2020 Code made explicit reference to “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”. However, after an extensive consultation process, the FRC has revised the definition to one that no longer includes an explicit reference to environment or society, instead focusing on “long-term sustainable value”.
Instead, investors should take into account the long-term risks and opportunities that affect their clients, including “having regard” to the economy, the environment and society.
The FRC said that, overall, stakeholders were supportive of its aim in making changes to the definition, but called for some amendments to strengthen the proposal. There were wide-ranging responses, from those expressing full support for the proposed changes to those who preferred the 2020 definition.
The Code applies from 1 January 2026 for reporting thereafter. However, to support a smooth transition to the updated Code, the FRC said 2026 “will be treated as a transition year”, meaning that signatories would be given the chance to embrace the updated reporting framework without an immediate assessment of their reporting.
There’s certainly plenty to digest in the finalised UK Stewardship Code 2026, said Lindsey Stewart, director of stewardship research and policy at Morningstar Sustainalytics.
“There are a few areas where it’s clear the FRC has acted upon stakeholder feedback – the 2026 transition period during which existing signatories will retain their status; the requirement to submit a Policy & Context Disclosure only every four years; and the new principle for engagement service providers all stand out in this respect.
“The amendment to the stewardship definition, including language to encourage signatories to ‘have regard’ to environmental and social matters, appears to be an accommodation aimed at easing the concerns of sustainability-focused investors. But the key sentence in the definition – focused on ‘long-term sustainable value’ rather than environmental and social outcomes – remains unchanged. So, it remains to be seen whether those investors think the amendments go far enough.”
Further reaction
Oscar Warwick Thompson, head of policy and regulatory affairs at UKSIF, said it was disappointing to see the new code definition exclude direct references to environment and society.
“This risks sending the wrong signal to investors concerning their role and engagement with material sustainability and governance issues in pursuit of long-term value creation,” he explained.
“The definition effectively sets the overall tone of the code and the interpretation of its principles. We have concerns over how the revised language may be interpreted by financial market participants. We do, however, note the definition’s references to ‘wider systems’ in the supporting statement. This appears to highlight that investors should still have ‘regard to the economy, the environment and society, upon which beneficiaries’ interests depend’.”
Leon Kamhi, head of responsibility and EOS at Federated Hermes Limited, agreed: “While we would have preferred a more explicit reference to the economy, the environment and society as material factors that drive sustainable value, the inclusion of these factors in the definition’s supporting language is reassuring, as it indicates that the Code as a whole does not de-emphasise them.
“Overall, we welcome the streamlined principles as positive. In particular, we support the decision to require the Policy and Context Disclosure to be submitted and assessed every four years, with any material changes in the interim disclosed in the annual Activity and Outcomes report. This will make the Activity and Outcomes Reports more dynamic and engaging.
“However, we were disappointed the originally proposed ability to cross-reference was dropped. While guardrails are important to ensure that the report tells a coherent narrative, cross-referencing policies, and reports where readers can find more detailed information, we believe would have made stewardship reports more engaging.”
Separately, it was positive to see new tailored principles confirmed for proxy advisers and investment consultants, which recognises their growing importance in the stewardship ecosystem, added Warwick Thompson.
“Going forward, there remains more work for policymakers and industry to help maintain the UK’s leadership position on stewardship practice. This should build on the positive role it can play in supporting the transition to a more sustainable future.”
