On the go: A new code from the Financial Reporting Council dictates how asset managers and pension funds should engage with companies for better environmental and social outcomes, including on climate change.
Published today, the Stewardship Code comprises of ‘apply and explain’ principles for asset managers and asset owners, and a separate set of principles for service providers, that are higher than the minimum UK regulatory requirements.
For example, on reporting expectations, it said signatories should explain the processes they have used to integrate stewardship and investment, including material ESG issues, and ensure service providers have received clear and actionable criteria to support integration.
Notably, the voluntary code does not prescribe a single approach to effective stewardship, and instead encourages organisations to meet the expectations in a manner that is aligned with their own business model and strategy.
It said asset owners and asset managers cannot delegate their responsibilities and are wholly accountable for effective stewardship duties including investment decision-making, monitoring assets and service providers, engaging with issuers and holding them to account on material issues, collaborating with others, and exercising rights and responsibilities.
The Pensions Regulator encourages adherence to the code in its guidance for trustees of defined benefit and defined contribution schemes, and signatories may choose to use their report to disclose information to meet other stewardship-related UK regulatory requirements or international stewardship codes.
Rachel Haworth, UK policy manager at ShareAction, commented: “The code is now clear that good stewardship should lead to sustainable benefits for the economy, the environment and society, that it should be focused on outcomes and effectiveness, and that it should encompass systemic risks.
“This should go a long way to putting an end to the ‘tea and biscuits' style of investor engagement and shine a light on what happens in discussions with the board.”
However, she added that for stewardship to be effective in changing company behaviour at the scale needed, the FRC needs to be robust and there must be consequences if companies fail to meet agreed goals.
“It currently does not have the necessary capacity and it is vital that the Government makes appropriate resources available.”
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