FRC announces significant update to the UK Stewardship Code

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Published: 22 July 2024

The Financial Reporting Council (FRC) has today announced significant revisions to the UK Stewardship Code application process and committed to five priority areas of review as it continues its revision the Code. Together, they ensure that the Code is supporting UK capital markets, reducing reporting burdens and driving better stewardship outcomes.

Following extensive engagement with over 1,500 stakeholders across our ecosystem during early 2024, the FRC will now focus on five themes in the new phase of the Code’s revision the Code:

  • Purpose – The FRC will consider all stakeholder views and set out its expectation of what defines effective stewardship, what this looks like in practice, and how reporting against the Code can help to deliver this.
  • Principles – The FRC is considering what reporting will be necessary to deliver on a renewed purpose of the Code.
  • Proxy Advisors – The FRC will carefully consider how the Code might support greater transparency of their activities.
  • Process – The FRC will take forward proposals to reduce the reporting burden currently associated with being a Code signatory and ensure that information included in reports is useful and accessible to all underlying investors and other stakeholders.
  • Positioning – The FRC is working closely with other regulators such as the DWP, TPR and the FCA to support clarity in understanding the revised Code and its successful implementation. The Code will continue to support the objectives of those other regulators to avoid any confusion and duplication that signatories may encounter.

The FRC is also making five immediate changes to significantly reduce the reporting burden on existing signatories. These changes will:

  • Remove the requirement to annually disclose all ‘Context’ reporting expectations, except for new reports or material changes.
  • Remove the requirement to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some Principles.
  • Explicitly allow use of content from previous reporting and cross-referencing of such reports.
  • Set clear expectations of what is considered an ‘outcome’ for stewardship purposes.
  • Emphasise the ability to exercise reporting against Principles 10, collaborative engagement, and 11 escalation ‘where necessary’.

This will provide clarity on areas signatories outlined as challenging to address, reduce the volume of reporting and provide flexibility for signatories in defining how they undertake stewardship.

These reporting changes to the Code will apply for the next application window (31 October 2024) and the FRC will be writing to signatories individually to inform them of how these changes impact them. We are confident that these early changes to the reporting process will significantly reduce application and reporting burdens for signatories going forward.

The FRC will launch a formal public consultation on the Code later this year, but given the significance of these changes, the FRC will be hosting a further phase of focussed engagement with our stakeholders throughout August and September on the five topics listed above.

“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.”

Richard Moriarty, FRC CEO

The FRC is also pleased to announce the list of Code signatories has been updated following the latest round of applications. There are now 287 signatories, representing a substantial £50.1 trillion in assets under management (AUM), marking an increase from the previous 273 signatories and £43.3 trillion AUM. The diverse range of signatories comprises 196 asset managers, 72 asset owners, and 19 service providers, reflecting the Code's widespread adoption across the financial sector.

To find out more about today’s announcement, join experts from the FRC on Wednesday 24 July for a webinar delving into these changes, and why the new focus areas are important for supporting better stewardship outcomes and UK capital markets.