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A revised Stewardship Code

Author: Michael Izza

Published: 13 Nov 2019

In his review of the FRC, Sir John Kingman was clear that the UK Stewardship Code must focus on ‘outcomes and effectiveness’, and cease to be simply a driver of boilerplate reporting.

The FRC has now revised the Code, and I want to provide members with an overview of some of the changes.


Every Code principle is now accompanied by an explanation of reporting expectations, including the outcomes – both positive and negative – which must be reported. Investors must describe how their governance structures and processes could be improved, and report any setbacks experienced and lessons learned.

The new Code sets higher standards for asset owners and managers – they are both subject to the same ‘apply and explain’ principles, although reporting expectations differ dependent upon whether investments are made directly or indirectly.

Investors must disclose their use of service providers, for example proxy advisers. This is supported by a new legal requirement for proxy advisers to report whether and how they follow a code of conduct.


I’m particularly pleased that the new Code requires integration of stewardship with investment decisions, and investors must disclose how their performance management and reward programmes incentivise this approach.

I also welcome the requirement for investors to describe their engagement with investee companies, including the outcomes achieved through this engagement.

The Code confirms that environmental, social and governance (ESG) factors must be integrated into stewardship and investment decisions. Specifically, climate risk is cited as an example of a systemic risk which investors must respond to.

Other changes

The Code applies beyond listed equity to other asset classes, although there are stronger reporting expectations for listed equity and fixed income investments.

Investors are required to report what internal or external assurance they have received in relation to their stewardship. They must also provide a breakdown of asset classes and geographies, and state how information gathered through stewardship has affected decisions to exit investments.

Overseas investments are covered. Different approaches to stewardship for different funds, asset classes or geographies must be made clear – investors may now find it difficult to justify any inconsistencies of approach towards environmental and climate issues.

A missed opportunity?

The new Code does not refer to investors escalating concerns to the regulator about potential business failure. However, the Department for Business, Energy and Industrial Strategy (BEIS) is reconsidering this proposal, alongside Kingman’s recommendation that auditors should have a duty to make such reports.

Looking ahead

Investors wishing to apply to be included in the first tranche of code signatories must report on how they applied the code during 2020, by 31 March 2021. The regulator – be it the FRC or ARGA – will publish a list of approved code signatories in Q3 2021.

The regulator will also report its observations on the quality of investors’ reporting on the new Code, providing examples of good practice.

I believe the new Code should be welcomed – it reflects the work that many investors already do, and may reduce the ability of some investors to free-ride on stewardship undertaken by others.

For more on this and other matters, please follow me on Twitter @MichaelIzza.