Luminous was thrilled to host the most recent in our #illumination series: ‘The new Stewardship Code and its implications for listed companies’. Claudia Chapman, from the Corporate Governance and Stewardship team at the Financial Reporting Council (FRC), kindly hosted the discussion, which centred around the implications of the new UK Stewardship Code, set to come into effect on 1 January 2020.
Purpose and process
The purpose of the new Code is to set high expectations for practice, increase transparency and create a market for effective stewardship. After extensive consultation of more than 110 responders, which concluded in March this year, the new Code represents a substantial and ambitious revision to the 2012 edition of the Code, with a shift from boilerplate policy statements to a focus on activities and outcomes.
The Code aims to stimulate greater demand for an engaged approach to stewardship and investment decision making aligned to the investment time horizons of beneficiaries, which are often long term.
Key changes in the new Code
The new Code reflects the changing nature of UK investments and builds on significant developments in sustainable finance, responsible investment and stewardship. The Code, which applies to asset owners, asset managers and the service providers that support them, introduces a number of key changes, including:
- redefining stewardship as ‘the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society’
- extending the Code to include service providers such as proxy advisers
- extending the Code to cover all asset classes, beyond listed equity
- taking annual reporting requirements beyond policies to activities and outcomes
- extending reporting requirements to include material environmental, social and governance (ESG) issues, including climate change
- reporting on purpose, values and culture, in line with the UK Corporate Governance Code 2018.
The Code follows a similar structure to the UK Corporate Governance Code 2018 and is structured around 12 principles which are to be followed on an ‘apply or explain’ basis by asset owners and managers. The principles broadly fall into three areas: purpose and governance; investment approach; and engagement and exercising rights.
Becoming a signatory
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. To be included in the first list of signatories, organisations must submit a final report in line with the reporting expectations to the FRC by 31 March 2021. The first list of signatories and FRC analysis of reporting will be released in the summer of 2021.
If you would like to know more about responding to the new Stewardship Code, please get in touch at email@example.com