News September 2020 Early Reports Shine A Light On Investor Stewardship

Early Reports Shine A Light On Investor Stewardship

30 September 2020
  • The UK Stewardship Code 2020 is a world leading, substantial and ambitious revision to the 2012 edition of the Code, which took effect from 1 January 2020.
  • To become a signatory to the Code, organisations will need to prepare an annual Stewardship Report, a brand-new requirement that will enhance transparency of stewardship activities and outcomes.
  • Some asset owners and investors have started to report against the principles of the new Code, but more needs to be done to meet the new higher standard.

As we look to build back better and support a green Covid recovery, the expectation that investors act responsibly has increased significantly. Society, Government and Regulators are all demanding that investors are engaged stewards of the assets entrusted to their care, and that ESG issues, including climate change, are included in their stewardship and investment decision making. This will bring about long-term value for clients and beneficiaries and sustainable benefits to the economy, environment and society.  

The UK Stewardship Code 2020 sets high expectations of those investing money on behalf of UK savers and pensioners in 12 Principles for effective stewardship. One of the important changes is the introduction of the new annual Stewardship Report. This is a challenge for prospective signatories to meet as it requires reporting on stewardship activities undertaken and the outcomes achieved, not just stating intent or policy. While some have made good attempts at early reporting, there are areas where reporting will need to improve to meet this high standard.

The Review of Early Reporting seeks to help prospective signatories in their planning by reiterating the expectations for high quality disclosure published in the Code, expanding on what we expect to see from reports and highlighting good examples where we have found them.

Key things that investors need to remember when preparing their reports include:

  • Fully explaining the structures and processes that underpin stewardship decision-making and the rationale for approaches taken, reflecting on effectiveness of approach and any related outcomes.
  • Addressing all asset classes and geographies. Even if the stewardship approach differs or is not as developed in other asset classes, this should be explained rather than avoided.
  • Focusing on activities and outcomes, reports should be supported with specific evidence from the reporting period, rather than just a general statement of approach.
 The FRC’s Director of Corporate Governance and Stewardship, David Styles said:

“The new UK Stewardship Code sets a high standard for responsible investment and signatories have an important role to play in supporting the Covid recovery.  The FRC commends those investors who have already begun to align their reporting to its principles. We are encouraged by the number of investors who have engaged with the spirit of the Code and used it as a framework to review their practices and reporting. We encourage others to do the same.”

 
 
Notes to editors:
 
The FRC’s purpose is to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
 
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