Corporate governance – FRC consultation on the Stewardship Code

The Financial Reporting Council (FRC) has published a consultation paper on the Stewardship Code, which proposes significant changes to, and a restructuring of, the Code.

The Stewardship Code, which was last updated in 2020, seeks to enhance the quality and quantity of engagement between investors and companies (for more details on the 2020 Code, see our blog post here).

The publication of the consultation paper is the next step in the fundamental review of the Code which the FRC launched earlier this year and follows the interim reporting changes which the FRC announced in July 2024 (see our blog post here). The consultation focuses on four themes:

• Purpose – It explores the purpose of the Code and proposes to change the definition of stewardship to "the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries". This proposed definition removes from the current definition the reference to these activities "leading to sustainable benefits for the economy, the environment and society", which the FRC says has been misinterpreted to mean that these outcomes are the primary purpose of stewardship.
• Process for reporting – In order to streamline reporting, the FRC proposes that there should be two separate elements to reporting under the Code – a Policy and Context Disclosure, and an Activities and Outcomes Report. Both elements will need to be submitted to the FRC each year, but the Policy and Context Disclosure will be formally assessed by the FRC only every three years, rather than annually, unless there are substantial changes.
• Principles – It is proposing two sets of Principles, one for asset owners and asset managers, and the other for service providers. In both cases, the Principles will be supported by "How to report" prompts and guidance. 
• Positioning – The FRC asks whether signatories should be permitted to cross-refer to disclosures contained outside of their Code report, rather than the report acting as a standalone source of information.

The consultation closes on 19 February 2025. The FRC intends to publish the updated Code in the first half of 2025, to take effect from 1 January 2026. The consultation paper sets out how the transition to the new Code will be implemented.