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Article:

UK Stewardship Code 2020 published

11 December 2019

In March 2019 we reported on the Financial Reporting Council’s (FRC) consultation on a revised UK Stewardship Code. The FRC has now published the revised UK Stewardship Code 2020 which takes effect from 1 January 2020.

The new Code contains substantial revisions to the 2012 edition, it sets higher expectations for stewardship practice and introduces more rigorous public reporting. In particular, it:

  • Has a strong focus on the activities and outcomes of stewardship, not just policy statements
  • Has new expectations about how investment and stewardship are integrated (including a consideration of non-financial issues) and
  • Asks investors to explain how they have exercised stewardship across all asset classes, not just listed equity.

To achieve this, the 2020 edition of the Code consists of a set of ‘comply or explain’ principles, each supported by reporting expectations which are designed to be flexible enough to allow an organisation to meet them in a manner that is aligned to its own business model and strategy.

Asset owners and asset managers

The 12 principles for asset owners and asset managers applying the Code are:

  1. Signatories’ purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society.
  2. Signatories’ governance, resources and incentives support stewardship.
  3. Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first.
  4. Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.
  5. Signatories review their policies, assure their processes and assess the effectiveness of their activities.
  6. Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them.
  7. Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.
  8. Signatories monitor and hold to account managers and/or service providers.
  9. Signatories engage with issuers to maintain or enhance the value of assets.
  10. Signatories, where necessary, participate in collaborative engagement to influence issuers.
  11. Signatories, where necessary, escalate stewardship activities to influence issuers.
  12. Signatories actively exercise their rights and responsibilities.

Service providers

The six principles for service providers applying the Code are:

  1. Signatories’ purpose, strategy and culture enable them to promote effective stewardship.
  2. Signatories’ governance, workforce, resources and incentives enable them to promote effective stewardship.
  3. Signatories identify and manage conflicts of interest and put the best interests of clients first.
  4. Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.
  5. Signatories support clients’ integration of stewardship and investment, taking into account material environmental, social and governance issues, and communicating what activities they have undertaken.
  6. Signatories review their policies and assure their processes.

What do organisations wanting to apply the Code need to do?

Organisations wanting to become signatories to the Code will be required to produce an annual Stewardship Report explaining how they have applied the Code in the previous 12 months. The FRC will evaluate this report against its assessment framework. To be included in the first list of signatories, organisations must submit a final report to the FRC by 31 March 2021.

Read the UK Stewardship Code 2020

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