FRC sees improved reporting against the principles of the Stewardship Code

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15 Nov, 2016

The Financial Reporting Council (FRC) has made public its assessment of signatories’ reporting against the Stewardship Code. The assessment “demonstrates much improved reporting against the Code and greater transparency in the UK market”.

The Stewardship Code (link to FRC website) operates on a ‘comply or explain’ basis and is aimed at institutional investors, asset owners and asset managers. It sets out good practice on engagement with investee companies, which includes monitoring companies, entering into dialogue with boards and voting at general meetings.  The aim of the Code is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.

The signatories have been categorised into tiers based upon the quality of the reporting in their statements based on the seven principles of the Code and the supporting guidance.  The tiering exercise was undertaken in order to “improve the quality of reporting against the Code, encourage greater transparency in the market and maintain the credibility of the Code”.  Asset managers have been categorised into three tiers and asset owner and service provider signatories have been categorised into two tiers 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.   

There are nearly 300 signatories to the Code and more than 100 signatories are Tier 1.  The FRC has indicated that “asset managers who have not achieved at least Tier 2 status after six months will be removed from the list of signatories as their reporting does not demonstrate commitment to the objectives of the Code”.  It also welcomes contact from signatories, particularly those in Tier 3, to “discuss improvements in reporting”. 

The FRC has indicated that although it is “pleased” with the response to the tiering exercise, where “many signatories have reaffirmed their commitment to quality, transparent reporting and stewardship”, it will still look for “continuous improvement” from Code signatories.

The press release and list of tiers are available from the FRC website.

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