UK Stewardship Code: FRC unveils new priorities

The Financial Reporting Council (FRC) has introduced significant revisions to the UK Stewardship Code, announcing five new priority areas and streamlining the reporting requirements for existing signatories. This overhaul comes after extensive engagement with over 1,500 stakeholders earlier this year.

Five new priority areas

1.  Purpose: The FRC aims to define effective stewardship, considering all stakeholder views and detailing how reporting under the Code can facilitate this.
2. Principles: This outlines necessary reporting, ensuring clarity and coherence in stewardship practices.
3. Proxy Advisers: The FRC will enhance transparency within proxy advisory services, supporting more informed decision-making.
4. Process: Changes will reduce the reporting burden, making information more accessible and useful for all stakeholders.
5. Positioning: This focuses on collaboration with regulators like the DWP, TPR, and FCA to ensure smooth implementation of the revised Code.

Easing the reporting burden

The FRC has introduced immediate changes to reduce the reporting workload for current signatories:

• Elimination of annual context reporting: Signatories will no longer need to disclose all context reporting expectations annually unless there are new reports or significant changes.
• Selective activity and outcome reporting: Annual disclosures for activity and outcome reporting will be required for only some principles.
• Reusing previous reports: Content from previous reports can be reused and cross-referenced.
• Clear outcome expectations: The FRC will set clear guidelines on what constitutes an ‘outcome’ for stewardship.
• Flexible reporting for principles 10 and 11: Signatories can report on collaborative engagement and escalation ‘where necessary’.

These changes aim to reduce redundant reporting, allowing stewardship professionals to focus more on engagement activities rather than administrative tasks.

Industry reactions

Richard Moriarty, FRC’s Chief Executive, emphasised the importance of these changes, stating that they ensure the Code remains proportionate and supports the growth of UK capital markets:

“The UK Stewardship Code is an important driver of the UK investment stewardship eco-system, safeguarding the interests of all savers and pension holders by promoting the transparency and accountability of investors stewardship activities and decisions, as well as being adopted by global investors.

“However, it is right that we continue to challenge ourselves to ensure that the Code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets. The next stages of the review announced today follow extensive engagement with our stakeholders and are designed to encourage the alignment of the Code with the UK’s well-deserved reputation as an attractive investment destination for global capital.

“It is our ambition that pension holders and savers better understand contributing to their pensions and savings to how stewardship activity and decisions are undertaken to their benefit, by the asset managers and owners investing on their behalf.”

Lindsey Stewart, from Morningstar Sustainalytics, echoed this sentiment, noting that the adjustments will help stewardship professionals dedicate more time to engaging with companies rather than preparing repetitive reports:

“While sentiment toward the FRC’s Stewardship Code remains positive overall, a number of preparers of the Stewardship Code reports have mentioned that the current reporting format requires the repetition of information provided in other reports, or annual updates on policies and activities that may have changed little since the last report.

“It looks like the FRC has listened to that feedback and taken some practical steps to ease the impact of those requirements. Anything that enables stewardship professionals to devote more time to engaging with companies and other issuers instead of preparing reports has to be a good thing.”

Future steps

The FRC plans a formal consultation later this year, continuing its engagement with stakeholders to refine the Code further. These efforts are part of the broader transformation anticipated for the FRC, which includes its evolution into the Audit, Reporting, and Governance Authority (ARGA).

The FRC’s revisions to the UK Stewardship Code represent a significant step towards more effective and efficient stewardship practices. By addressing key areas and reducing the reporting burden, the FRC aims to enhance transparency, accountability, and the overall impact of stewardship activities. These changes not only benefit current signatories but also reinforce the UK’s position as an attractive destination for global investment.

Read more about the updates, including the updated list of code signatories, on the FRC’s website.