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FRC publishes a revised UK Stewardship Code

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25 Oct 2019

The Financial Reporting Council (FRC) has published a revised UK Stewardship Code (“the Code”).

The new Code sets higher expectations for investor stewardship policy and practice and focuses on how effective stewardship delivers sustainable value for beneficiaries, the economy and society

The Code is voluntary and sets an aspirational standard beyond minimum regulatory requirements in the UK. The Code now comprises 12 ‘apply and explain’ Principles for asset owners and asset managers, with reporting expectations relevant to their role. In addition, there are six, separate ‘apply and explain’ Principles for service providers with reporting expectations.

An organisation applying to become a signatory to the Code will need to provide a Stewardship Report that sets out how they have applied the Code Principles in the preceding 12 months. This must include reporting on the activities they have undertaken, and the outcomes achieved. For the organisation to be listed as a signatory on the FRC’s website, the Report will need to meet the reporting expectations set out in the new Code.

Key changes in the new Code include:

  • An extended focus that includes asset owners, such as pension funds and insurance companies, and service providers as well as asset managers. This is intended to help align the approach of the whole investment community in the interest of end-investors and beneficiaries.
  • 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.
  • 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.
  • 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.
  • 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.

The 2020 Code takes effect for reporting years beginning on or after 1 January 2020.

Additionally the Financial Conduct Authority (FCA) has published a feedback statement to its joint discussion paper entitled ‘Building a regulatory framework for effective stewardship’.  The feedback statement is available on the FCA website

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