How to report on the UK Stewardship Code
Published: 24 September 2023
3 minute read
We have produced UK Stewardship Code: Advice for October 2021 applications with information about making a successful application, which may be useful to anyone preparing a report for 2024.
The Stewardship Code
The Code comprises a set of 12 ‘apply and explain’ Principles for asset managers and asset owners, and a separate set of six Principles for service providers.
The Principles are supported by reporting expectations which indicate the information that organisations should publicly reported to become a signatory.
The Code has four main sections:
- Purpose and Governance
- Investment Approach
- Exercising Rights and Responsibilities
The Report should be a single document structured to give a clear picture of how the organisation has applied the Code in the reporting period. The FRC does not prescribe a single approach so long as the Report explains how the Principles have been applied using the reporting expectations. The report should be a useful and accessible document for clients or beneficiaries as well as the regulator.
Organisations may also include within the same report information relevant to meet other regulatory reporting requirements, such as the Shareholder Rights Directive II (SRD II).
The Code requires signatories to apply stewardship across all asset classes and geographies. How should this be reported on?
Reporting should be proportionate, with examples reflecting the breakdown of assets under management by asset class and geography reported under Principle 6. For example, if an organisation is invested 50% in equities and 50% in fixed income, examples in the report are expected to evidence approaches in both asset classes, not just equity. Where this is not the case, an explanation should be given.
The FRC recognises that investors in asset classes outside UK listed equity may have different rights, responsibilities and abilities to influence. Applicants should consider what forms of rights and influence they have beyond voting rights and explain how these have been exercised. Where organisations face practical or legal barriers to exercising stewardship, they should explain these and any actions they are taking as a result.
Should policy documents and voting records be included within the Report?
The Report should provide enough information to enable the reader to have a good understanding of the application of the Code without having to refer to information elsewhere. However, signatories are not required to provide the full text of policy documents within the Report. They should provide a summary with enough information that readers of the Report can understand the key features of the policy. Where documents are referred to, these should be easily accessible and linked to from the Report.
The FRC does not expect signatories to include their full voting records within the Report. Instead, they should provide meaningful summary information about their voting within the document and link to their voting records, which should be publicly disclosed on their website.
Signatories need to report on all 12 Principles (6 for service providers) and their reporting expectations. In cases where there is a strong reason why a reporting expectation does not apply, applicants should explain this reason.
For some Principles, such as Principles 6, 7, 8, 9, 11 and 12, different reporting expectations apply depending on the role of the organisation. Organisations should choose the reporting expectation most appropriate for their business. It may be necessary in some cases to report on both reporting expectations aimed at asset owners and asset managers.
The Principles and reporting expectations apply to all asset classes and organisations should explain the rights and responsibilities associated with different asset classes and geographies, demonstrating how their approach differed as a result.
What does ‘apply and explain’ mean for the Principles?
To become a signatory to the Code, organisations are required to apply all relevant Principles – 12 Principles for asset owners and asset managers, and 6 Principles for service providers – and explain how they have done so over a 12-month period.
The Principles are supported by reporting expectations, which indicate the information that organisations should disclose to demonstrate their application of the Principles. There may be occasional cases where the reporting expectations do not apply for an organisation’s business model. In these cases, the FRC would expect, as part of the Report, a clear explanation of why the reporting expectation is not appropriate.
Focus on outcomes
The Code has a focus on reporting stewardship activities and outcomes. Prospective signatories should demonstrate how they have practiced stewardship during the reporting period to fulfil their policies and objectives.
Activities identify the actions taken by the organisation during the reporting period to fulfil the Principle, while Outcomes explain the result of the actions taken during the reporting period. Case studies can be a useful tool to meet reporting expectations and describe activity and outcomes, explaining the firm’s approach and its role in the process.
Effective outcome reporting is clear about the progress made against objectives and identifies next steps where appropriate. Fair reporting also identifies areas where objectives have not been met and lessons learned.
Review of Early Reporting
The FRC has published a Review of Early Reporting to the Stewardship Code. The purpose of the Review is to support prospective signatories in meeting this new reporting requirements. We analysed 21 responsible investment, active ownership and stewardship reports and looked at how well prospective signatories are addressing the higher standards we have set. It highlights expectations for the 12 Principles and provides examples of effective reporting.