The Financial Reporting Council (FRC) has published a new consultation aimed at updating and strengthening the UK Stewardship Code.

The Stewardship Code governs how UK institutional investors engage with listed companies.

ShareAction strongly welcomes many of the proposed changes. We support proposals for clearer distinctions on the duties of the different types of signatory to the Code i.e. asset owners, fund managers and service providers. The recognition by the FRC that ESG factors can be financially material is an extremely welcome step forward and something ShareAction has been campaigning on for years.

A key concern over recent years has been the extent to which the Stewardship Code has been enforced by the regulator, and we note its intention that reporting will be subject to increased oversight by the FRC. The recently published Kingman Review was clear that the regulator should focus on ‘outcomes and effectiveness’, not policy statements. We are hopeful the steps taken by the regulator which include a named contact for stewardship, a new policy and practice statement, and an annual outcomes report will go some way to addressing this concern, although the impact of these measures should be monitored and reported on by the regulator.

Fergus Moffatt, Head of UK Policy at ShareAction, commented: “It’s all change for the stewardship agenda – and possibly for the FRC itself. The clearer distinctions on the duties of the different types of signatory to the Code has the potential to boost effective stewardship from asset owners, fund managers and service providers. In addition, the explicit reference to environmental and social factors throughout the document is an extremely positive step forward and the recognition by the regulator that ESG factors can be financially material – and in such instances should be considered by signatories – is good news for companies, investors, savers, and the environment.

“But it shouldn’t stop there. Stewardship should be a tool to address the best interests of beneficiaries considered in the round. Yes, stewards of other people’s capital should address material ESG issues in portfolios – including workforce issues – but also consider how investments may be materially impact savers’ lives as workers, consumers and citizens.

“Our ultimate goal is a regulatory structure that is clear on the purpose of stewardship, enshrines it as a central part of investors’ duties and holds investors to account where they fail to fulfill these duties. The FRC should ensure investors produce stewardship policies and reports that are clear on their aims, strategies, and outcomes. In practice, for example, this would mean asset managers would come clean on whether they’d asked carbon-intensive companies to set emissions reduction targets, and if the company had followed through. Holding signatories to account is an essential part of the FRC’s role in supporting effective stewardship. While the Regulator notes that it may ‘consider highlighting signatories whose implementation and reporting are lagging’, we expect more details around sanctions for non-compliance and look forward to hearing from the FRC on how it intends to enforce the Code.

“The Kingman Review cast grave doubts on aspects of the FRC’s ability to regulate – both on stewardship and more generally. We have concerns about the risk of the proposed new regulator, ARGA, being too close to the interests of UK investors (in its role overseeing company reporting and audit) to hold them to account effectively. Given the FCA’s responsibility to supervise the conduct of asset management firms, carry out enforcement activities and achieve good consumer outcomes, it could feasibly play a more prominent role on stewardship.”

Notes to editors:
• For more information, please contact Beau O’Sullivan at or +44203 475 7859
• In April 2018, the Government launched an independent ‘root and branch’ review of the Financial Reporting Council (FRC), the regulator for auditors, accountants and actuaries. The review was led by Sir John Kingman, supported by an advisory board. The stated aim of the review was to make the FRC the best in class for corporate governance and transparency, while helping it fulfil its role of safeguarding the UK’s business environment.
• The Kingman Review made 83 recommendations in total, including abolishing the FRC and replacing it with an independent statutory regulator with “the interests of consumers of financial information, not producers” at its heart.
• The review recommended putting the new regulator in charge of regulating major audit firms, ending self-regulation through trade associations, and making reviews of audit quality and corporate reporting public. It also said that ‘serious consideration should be given to [the Stewardship Code’s] abolition’ if it ‘remains simply a driver of boilerplate reporting’ rather than focusing on ‘outcomes and effectiveness’.