Corporate governance – revisions to Stewardship Code reporting process

The FRC has announced immediate changes to the UK Stewardship Code reporting process, as well as outlining the five areas it will prioritise in the context of its wholesale review of the Stewardship Code.

The purpose of the Stewardship Code, which was last revised in 2020, is to set stewardship standards for asset owners and asset managers, and for service providers that support them. It includes 12 “apply and explain” Principles for asset owners and asset managers and six separate Principles for service providers, each of which is accompanied by reporting expectations (see our blog post here). 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 reports must be approved by the FRC and, once approved, made publicly available.

The FRC plans to conduct a formal consultation on revisions to the Stewardship Code later this year, with a view to implementation in 2026. Following preliminary engagement with stakeholders, it has stated that its detailed review will focus on five topics:

• Purpose – developing an updated definition of stewardship to set out what effective stewardship looks like in practice;
• Principles – exploring how the Principles might be streamlined and amended to better reflect the wide range of assets in which signatories invest;
• Proxy advisers – the influence of proxy advisers, and whether changes to the Code could support greater transparency on their activities;
• Process – reducing reporting requirements, while also ensuring that the reports produced continue to meet stakeholder needs; and
• Positioning – the impact of multiple overlapping regulatory requirements on signatories (including by seeking to avoid duplication).

Ahead of the release of the revised Stewardship Code, the FRC is making a number of interim reporting changes aimed at reducing the reporting burden on those applying to become, or remain, signatories. The interim changes will be effective for the next application deadline (31 October 2024) until the revised Stewardship Code is implemented and include:

• with a couple of exceptions, there will be no requirement for existing signatories to disclose annually against all reporting expectations save where there are material changes to information disclosed in a prior report; and

• existing signatories may cross-refer to content from prior reports to satisfy reporting expectations.

The FRC has published an FAQ document to provide further guidance on these interim reporting changes.