FRC publishes research into stewardship practices of assets managers and asset owners

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08 Jul, 2022

The Financial Reporting Council (FRC) has published the results of research commissioned to better understand the current stewardship practices of asset managers and asset owners and to assess the impact that the revised UK Stewardship Code ("the Code") has had

The research, which is based on 55 asset managers and owners, found that both groups are very positive about the impact of the Code and that there was strong evidence of material changes to practice in the areas of governance and resourcing of stewardship, stewardship activities, processes and outcomes, and monitoring and reporting of stewardship.  The research, which included a survey with asset managers and interviews with asset managers and asset owners conducted between May and September 2021, focused on five themes – governance, resourcing, engagement, collaboration, and escalation, monitoring and reporting and organisational context.

The key findings were:

  • Governance: companies indicated that they had recently reviewed and updated their governance arrangements and that the governance of stewardship had become more consolidated within their companies.  All of the companies within the sample had identified some form of organisational restructuring to better integrate stewardship within their investment decision-making.  Examples of the types of changes include establishing oversight committees, improving reporting and transparency, appointing a head of sustainable/responsible investment, and giving internal conflicts management greater attention.  The research also found that stewardship integration differs between assets managers depending on their size. 
  • Resourcing: both asset owners and asset managers reported increases in the resourcing of stewardship, typically identifying overall research budget increases, the growth of stewardship teams and the use of external experts.  Although resourcing is still considered a challenge for some, many participants in both the survey and interviews were largely positive about the future of stewardship resourcing, expecting growth in areas of staffing and research budgets.  Interviewees also acknowledged the opportunity for more formal career progression and training in stewardship.
  • Engagement, collaboration and escalation: respondents noted that the development of the Code has been useful for their engagement practices, with all respondents undertaking some form of engagement and escalation with companies. A variety of engagement techniques were reported by respondents with most identifying collaborative engagement as an increasingly important escalation tool.  Themes being prioritised by asset managers and owners during engagement are climate change, governance, diversity, and biodiversity.
  • Monitoring and Reporting: Eighty-five per cent of surveyed asset managers and all interview respondents indicated that they now set stewardship and engagement objectives and report on their progress. Respondents indicated that their stewardship reporting has improved particularly in how they report on their monitoring (asset owners) and their engagement (asset managers).  Whilst reporting has improved, many participants identified certain barriers to successful stewardship reporting such as data quality, a lack of agreed standards, and the time taken to produce reports. 
  • Credibility of the Code: the research identified a number of motivations for applying the Code. Key motivating factors for respondents applying to become signatories included increased market expectations, for example from asset owners and investment consultants, to demonstrating good practice and avoiding reputational risk.  Many reported a positive impression of the Code with several referring to it as a ‘gold standard’ for stewardship.  Whilst sixty-five per cent saw no regulatory or legal barriers to stewardship, some expressed concerns over the volume of reporting required and the overlap in the requirements for initiatives and frameworks, including the Code.

The FRC, along with the Financial Conduct Authority, the Department of Work and Pensions and the Pensions Regulator – will carry out a review of the regulatory framework for effective stewardship including the operation of the Code, from 2023 as confirmed by the Government in its response to its White Paper Restoring trust in audit and corporate governance.  Additionally, later this year the FRC will engage asset owners and investment consultants to understand how they use asset managers’ stewardship reporting for decision making and monitoring.

press release and the report are available on the FRC website.

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