London, 24 October 2019 – The Chartered Governance Institute UK & Ireland has today welcomed the publication by the Financial Reporting Council (FRC) of the UK Stewardship Code 2020 (the Code), believing that the revised version reflects the changing needs of asset owners and public expectations. The governance body believes, however, that the increased focus on reporting to asset owners may have an impact on the quality and quantity of engagement with companies and the emphasis on ESG issues risks provoking more ‘policy statements’ than the ‘outcomes and effectiveness’ focus recommended by the Kingman review. The FRC and its successor will need to monitor asset manager reporting and activity to ensure that this is not the case, the Institute stresses.
Peter Swabey, Policy and Research Director at The Chartered Governance Institute UK & Ireland says: “The Stewardship Code introduced in 2010 created a very welcome focus on the importance of stewardship by asset managers and their engagement with investee companies. Although updated in 2012, it has been clear over recent years that the shifting needs of asset owners and changing public expectations necessitate further change. The FRC is to be congratulated for tackling that need head-on rather than tinkering and we now have a much more robust document, reflecting these changed requirements.
“Probably the most significant new requirement is that for annual reporting on stewardship activity and its outcomes. This will allow asset owners to see more effectively how their interests are being served by giving them greater insight in to what is actually being done on their behalf.
“Of course, any change will bring with it suggestions of opportunities missed or areas that have received overmuch focus and the Code is no different. It may be that the sensible focus on reporting to asset owners may have an impact on the quality and quantity of engagement with companies. Similarly, as we observed in our response to the consultation earlier this year, the increased emphasis on ESG issues, reflecting increased public concern, risks provoking more ‘policy statements’ rather than the ‘outcomes and effectiveness’ focus recommended by Sir John Kingman’s review despite the Code’s emphasis on outcomes. It is crucial that monitoring of how asset managers are reporting is carried out robustly in order to avoid the tick-box approach that the FRC is clearly so keen to avoid.
“All in all, however, the revised Code is a great improvement on its predecessor and we look forward to seeing its implementation in the coming year.”
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