New signatories added to the UK Stewardship Code

Published: 16 February 2023

6 minute read

Following our latest update to the list of signatories to the UK Stewardship Code, Kate O’Neill sat down with our Acting Head of Stewardship Andrea Tweedie to discuss what the Code is all about, how we support organisations to become signatories and how the Code is supporting better stewardship across the UK and globally.

Transcript

Welcome to another FRC in Conversation. My name is Kate . I'm the Director of Stakeholder Engagement and Corporate Affairs, and today I am joined by Andrea Tweedy, the Acting Head of Stewardship at the frc. Welcome, Andrea. Hi Kate. Thanks. So this week we're publishing what in relation to the stewardship code.

So this week we will be updating the list of signatories to the UK stewardship code. This will be the third time that we are updating the signatory list, following the first list to the 2020 UK code that we published in September of 2020. And just to remind everybody, give us a quick count through what the stewardship code is, what it isn't, and what is the purpose of it.

Yeah, sure. So I think a good place to start is always even one step back from what the stewardship code is, but what is stewardship, and that's the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries. Also leading to sustainable benefits for the economy, the environment, and society.

Just when you say stewardship, Andrea, you mean people who invest Our savings, our isis, our pension money. And these people are the fund managers in the global community. That's exactly it.

So it's the fund managers and various other asset managers in the community, and then as well their clients, the asset owners, and pension funds and insurers and so on.

And it's really aimed at delivering that long-term value for the end beneficiary. So that'll be savers and pension. . And so why do you need a code? Why don't the fund managers just do this anyway? Well, I think what we've found is that the code really helps set that high standard for stewardship and puts a bit of structure around how those who are investing money on behalf of others are doing that and having regard for that end client or beneficiary.

So I. In terms of the stewardship code, we see it really being as something, it's not anything that's prescriptive. It's really an opportunity for those managers to tell their story, say what they're doing in their stewardship, and then also, Back that up with evidence of what they have done in the reporting year that they're submitting.

I think it'll be helpful to remind our listeners that you don't just apply to become a satory once and you have that status forever, right?

Yes, that's exactly right. So there's an annual reporting requirement in order to remain a stewardship code signature, and that means signature is. Submit their stewardship report to us each year.

That gives an update on what they have done in terms of their stewardship for that year, and we get them to report against the 12 principles, and they need to meet the high standard for stewardship that we set each and every year.

What is the significance for signatories? Is this like a badge of honor?

Is this part of a marketing exercise for.

So signatory status to the UK stewardship code is widely recognized in the market as being something that demonstrates your commitment towards stewardship and wanting to be a leader in this field. And I think a lot of the benefit that's in it as well is that it's including examples of your activities and outcome.

Each year to really show that it's not just a policy statement saying what you aim to do, but really being able to demonstrate to your clients and the wider market and the end beneficiaries, what that actually means in practice. And before we get into a bit more of the detail about how you and your team support applicants and existing signatories, we've seen people from all over the world apply to become signator.

Is the UK stewardship code, the only stewardship code in the fund management community globally?

We're not the only stewardship code, but I'd say we're definitely a leader in terms of what we are asking our signatories to do in terms of having that annual. Reporting requirement that moves beyond a policy statement.

So we do find we have interest from international asset managers, and that might be because the UK code is seen as a leader, not just in the UK but globally. And as well, because they might have clients in the UK who are asking them and requesting for them to apply to become a signatory, demonstrating their commitment to stewardship in that way.

And so the support that you and the team give them, is that handholding as they go through the process? Or how do you engage with applicants?

So we really look to support as many organizations to become stewardship code signatories as we can. We're about enabling as many and encouraging as many organizations to be signatories rather than really looking to catch people out and say that they can't be a signatory. So we do this in a number of ways. We do a review of reporting, um, annually usually, which we've done over the past few years. So that will outline what we have seen in stewardship reporting. But also importantly, it clarifies our expectations and provides guidance on how to report well.

And we also include some good practice examples of reporting that we take from existing satory reports. And so this time around it's, it's our third report of not just the number of Aries, but have you seen a shift in focus from the applicants on what they're really trying to push as examples of how they're, uh, complying with the code?

So we've definitely, um, seen. Continued increase in the number of applications to become signatories at every available window, and we will be increasing the number of overall signatories that we have from this update. I'd say in terms of what we're seeing signatories reporting on, and also what we are asking them to report on, the focus really has been on showing what you're doing year on year, so having that right level.

Specificity talking about the activities and outcomes from each reporting year, and also looking at disclosure of stewardship activity that has spanned across multiple years. For example, a significant engagement with a company is likely to go across a few years, and we're starting to see that reporting where a particular engagement is then updated.

Subsequent reporting periods showing the activity and the outcomes from each year. You're starting to kind of see some themes emerging, I would imagine, because it's been in place for a number of years now. How would you say to someone who were challenging? I don't, I don't think it's creating better outcomes for end users.

I e investors, pensioners, iso holders, savers.

How are you making the link between signatories to the code complying with the code, better examples of engagement and input to companies and output, such as long term value creation for those those companies and their investors?

Yeah, that's a great question, Kate, and I think, you know, there is an inherent.

Difficulty and challenge always in showing how any particular activity or outcome is then contributing to a very much longer term outcome. But I would say as some observations I've made of stewardship reporting and what we've seen in research we've done to support. The development of the code as well.

We've seen some great examples of where stewardship is working, and so while there is room for improvement in the consistency of this across the market and the reporting as well, we've seen great case studies about successful engagement, some of which, like I said, span several years to achieve their.

The desired outcome. We see examples of asset managers increasing their expectations of companies through their proxy voting policy, for example, on issues like board diversity. And we're also seeing some fantastic examples of collaborative initiatives across. The industry, for example, through the investor forum.

Another thing that we're seeing across stewardship reporting is the industry putting more resource into stewardship and enhancing the governance and processes around it. So that makes me think that. We have not only some great examples already of stewardship, effective stewardship and the reporting of that, but that we can also be hopeful for the continued enhancement and effectiveness of that in the future if that trend is anything to go by.

I think that's a really great summary of accumulative effect of what the code's impact has been on the investment community, and this will show that the FRC is building. On the good practices it's seeing from investors each year. As a last comment, Andrea, there will be people who, from time to time, lose their status for a variety of reasons.

That's true, isn't it?

Yes. That is definitely the case as we have that requirement for signatories to send a report in that meets the standards of the stewardship code every single year. So we don't really comment on any individual cases. But we are really looking for organizations to maintain the quality of their reporting, to improve it over time, using the individual feedback we provide to every applicant and really show their activities and outcomes from the year through examples and case studies.

Well, thank you Andrea. I'm sure the updated list of will show the endless of the investment community to be judged by the high standards of the UK stewardship code. Thanks all for listening, and thanks to Andrea for sharing these insights.

Thanks, Kate.