UK Stewardship Code: 5 New Changes for Signatories

The regulatory landscape around stewardship in the UK keeps evolving: after the phased implementation of the UK SDR  that began this year, the UK's Financial Reporting Council (FRC) recently announced several crucial updates to the UK Stewardship Code that aim to reduce reporting burdens for signatories while enhancing the Code’s effectiveness.

We’ll give you an overview of the key revisions, their impacts on existing signatories, and how you can prepare for these changes.

Why stewardship matters

Effective stewardship ensures that investors are actively monitoring and engaging with investee companies to promote sustainable value creation. 

The UK Stewardship Code, overseen by the FRC, aims to make stewardship an integral part of investment decision-making. By signing up for the voluntary Code, investment managers, asset owners and service companies commit to principles like monitoring assets and service providers, engaging with issuers, and evaluating governance risks.

The Code has evolved since its introduction in 2010, with a major update introduced in 2020, setting out a new reporting process and standards to meet signatory status.

As stewardship expectations continue to rise, the FRC is again revising the Code on an ongoing basis to enhance its efficacy for investors, with a view to implementing a new Code in 2026. 

Priority Areas for the Code Update

After extensive consultations with over 1,500 stakeholders, the FRC announced in July 2024 five main areas of focus for improving the Code going forward:

• Purpose: Clarifying effective stewardship and how reporting facilitates it.
• Principles: Adjusting reporting to align with the Code’s renewed purpose.
• Proxy Advisors: Enhancing transparency around proxy advisor activities.
• Process: Streamlining reporting requirements to enhance usefulness and accessibility.
• Positioning: Collaborating with regulators like the FCA to ensure smooth implementation.

By focusing reforms on these key areas, the FRC aims to make the Code more relevant for evolving investor needs while also reducing the administrative burden of complying with its requirements.

Five immediate changes to relieve reporting burden

In addition, the FRC has already introduced several immediate changes that existing signatories will benefit from in the next application window from 31, October 2024:

1. Removing the need for annual disclosures on ‘context’ reporting unless there are significant changes. 
2. Eliminating annual ‘activity’ and ‘outcome’ updates for certain principles, except where major changes occur. 
3. Allowing the cross-referencing of previous reports to avoid duplicative disclosures. 
4. Providing explicit definitions of stewardship ‘outcomes’. This brings clarity to what investors should report on.
5. Allowing collaborative engagement and escalation only “where necessary”. Applicants do not need to undertake these activities unless it is conducive to achieving their stewardship objectives. 

More details on these changes can be found here.

These changes are intended to make the Code more flexible and proportional for signatories while upholding high quality stewardship.

What do these changes mean for existing signatories?

The impacts on existing signatories investing under the current Code have been generally received positively as they reduce workload for reporting and are set to improve consistency:

• Lower administrative workload: Less frequent and extensive reporting requirements should free up resources for investor stewardship activities.
• Maintain consistency: Cross-referencing previous reports provides continuity for demonstrating ongoing stewardship.
• Tailored reporting: More flexibility over principle disclosures allows reporting customised to investor practices.
• Clearer expectations: New outcome definitions give more direction on what stewardship results need reporting.

Are there any potential drawbacks?

While the proposed revisions ahead of public consultation are positive, greater clarity is needed on key areas such as collaborative engagement and escalation, both crucial stewardship tools. For example, initiatives like Climate Action 100+ and FAIRR have significantly influenced corporate sustainability action.

The FRC's suggestion that reporting on collaboration and escalation is required only “where necessary” risks framing these practices as last-resort measures, despite many investors using them regularly as part of their stewardship activities.

A more nuanced revision may better reflect practical stewardship to better align with the FRC's view that “collaborative engagement and escalation are important stewardship tools.”

How should signatories prepare for any upcoming changes?

Current signatories should proactively prepare for when the new changes become applicable from October 31, 2024:

• Review the new changes: Understand the updated reporting requirements and outcome definitions.
• Assess current practices: Identify any gaps in reaching new expectations, particularly around collaborative engagement.
• Streamline reporting: Optimise processes to utilise cross-referencing and flexible reporting options.
• Engage investors: Discuss changes with clients and partners to align on more efficient disclosure approaches.
• Train employees: Educate teams on revisions so everyone understands the refreshed focus.
• Test readiness: Trial-run new reporting before the application window to confirm readiness.
• Provide FRC feedback: Weigh in during public consultations to help fine-tune the changes.

There are ongoing roundtable sessions by the FRC throughout August and September for asset managers, asset owners, proxy advisors, investment consultants and service providers.

With some advance planning, signatories can seamlessly transition to the updated Code while improving oversight.

Enhancing Stewardship’s Core Pillars

Ultimately, the FRC changes are about reinforcing stewardship’s foundational pillars of transparency and accountability:

• Transparency: Streamlined reporting provides clearer insights into investor activities and outcomes.
• Accountability: Emphasis on engagement results encourages proactive monitoring and oversight.

By realigning disclosures with these core values, the Code revisions will encourage signatories to elevate their stewardship efficacy and integrity.

In Conclusion

The investment community continues to demand higher stewardship standards that generate sustainable value for stakeholders. By improving the UK Stewardship Code’s flexibility and relevance, the FRC’s updates provide a governance foundation that benefits signatories and the wider economy.

Existing signatories stand to gain from reduced administration and clearer direction on transparently demonstrating their accountability through the Code. 

As responsible investment takes centre stage globally, the Code’s evolution positions the UK as a leader in stewardship best practices. 

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Do you need help with tracking your engagement objectives and stewardship reporting? Schedule a demo today to find out how the Impactive Platform can help your team streamline the process and work more effectively.

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