New Stewardship Code

In November 2019, the Financial Reporting Council (FRC) published the final form of the new UK Stewardship Code. The Financial Conduct Authority (FCA) also published a feedback statement on effective stewardship.

Stewardship Code 2020

The Stewardship Code seeks to improve long-term returns to beneficiaries by enhancing the quality and quantity of engagement between investors and companies.

Compliance with the Stewardship Code is voluntary. Organisations applying to become, or remain as, a signatory to the Stewardship Code are required to produce a Stewardship Report each year, explaining how they have applied the Stewardship Code in the previous 12 months. The Report will have to be approved by the FRC and, once approved, made publicly available.

Key features on the new Stewardship Code are:

• Structure – The Code comprises of 12 principles for asset owners and asset managers, and six separate principles for services providers (including proxy advisers). Each set of principles apply on an "apply and explain basis".
• Annual Stewardship Report – The principles are accompanied by reporting expectations, indicating the information that a signatory should include in its Stewardship Report. These reporting expectations focus on activities and outcomes, with the intention of moving away from generic boilerplate statements on policies that were produced under the previous edition of the Stewardship Code.
• Environmental, social and governance factors – Signatories to the Code will be expected to take environmental, social and governance factors, including climate change, into account and ensure their investment decisions are aligned with the needs of their clients.

The new Stewardship Code takes effect from 1 January 2020. In order to be included in the first list of signatories, organisations must submit a Stewardship Report to the FRC by 31 March 2021. The FRC will then publish a list of signatories to the new Code in Q3 2021.

FCA feedback statement on stewardship framework

The FCA published its feedback statement following its joint discussion paper with the FRC on the stewardship framework which was published in January 2019.

The topics discussed included what effective stewardship looks like, the key challenges to effective stewardship, what the minimum expectations should be for financial services firms that invest for clients and beneficiaries, and the standards that the UK should aspire to and how these could be achieved.