FRC Review of Stewardship Code

The FRC is seeking views from all stakeholders on whether the Code, in its current format, is being used by asset managers, asset owners and other signatories to the Code in a manner that drives better stewardship outcomes from engagement with issuers. To inform their formal consultation, the FRC are conducting targeted outreach on the topics outlined below, and the Society is proposing to arrange some roundtable events to enable members to provide feedback to the FRC.

Now that the revised Corporate Governance Code has been published (see here), the FRC is undertaking a fundamental review of the UK Stewardship Code 2020 “to ensure it supports growth and the UK’s competitiveness”. Following feedback on the Corporate Governance Code, the FRC wants to ensure that that the principles of the Stewardship Code are still driving the right outcomes for investors while not unduly contributing to reporting burdens, and encourage alignment of incentives through the investment chain.

The review will focus on, amongst other topics, the extent to which the Code:

  • supports long term value creation through appropriate investor-issuer engagement that drives issuers’ prospects and performance
  • creates reporting burdens on issuers as well as Code signatories and
  • has led to any unintended consequences, such as short-termism in targets and outlook for issuers.

The Code was last revised in 2019 (see the Society’s comments on the previous revisions here), and a formal consultation is expected this Summer after the 2024 AGM voting season, with a revised Code likely in early 2025.

The FRC also recently announced that (since the latest round of applications), there are now 273 signatories to the Code, representing £43.3 trillion assets under management. This includes 188 asset managers, 66 asset owners and 19 service providers. Current signatories span single-strategy boutique asset managers to large global asset managers with active and passive funds.

Approximately one third of the total assets under management of signatories are invested in both UK and global listed equity and two thirds in other asset classes. Other assets include fixed income, private equity, real estate and infrastructure and others. The significant international interest in the Code is reflected by the two fifths of signatories who are head-quartered outside of the UK.

The current Code will operate as usual throughout the review process, with existing signatories required to submit their renewal application to remain a signatory. Once the revised Code is updated, the FRC will set out a clear implementation pathway and ensure the effective date allows current signatories sufficient time to respond to any changes.

The FRC has also published a short document collating previously published guidance to help signatories and applicants to the Code prepare fair, balanced and understandable reports in 2024. This provides recommendations to help organisations produce high-quality stewardship reports that demonstrate how they have applied the Code's principles across areas such as investment research, decision-making, monitoring, engagement, and exercising voting rights.

Published 29 February, 2024