@FRC via Wikimedia Commons.

The Financial Reporting Council (FRC) has launched its consultation on the proposed updates to the UK Stewardship Code, which the organisation said would be focused on supporting economic growth and investment as well as “delivering increased transparency”.

The FRC said it also wanted to streamline reporting requirements and reduce burdens for signatories and “ensure a clearer focus on the purpose of Stewardship and the outcomes that it delivers”.

The FRC is the UK’s regulatory body for auditors, actuaries, and accountants and sets the UK’s Corporate Governance and Stewardship Codes.

The changes to the code could massively impact fund operators and other investment management firms involved in stewardship. Its focus on reduction of burden around reporting could be a huge boon for the firms that have seen regulation increase in recent years.

The FRC launched its review of the code in February this year. At that time, it set out five priority areas to focus on in the review of the Code. This announcement followed the FRC launching a review of the Code in February 2024.

It has already made some changes over the summer.

The new changes will likely be wider in scope.

Industry reaction

So far the industry has shown only lukewarm positivity to the proposed changes.

“A streamlined FRC Stewardship code is welcome, but do changes preserve ambition?” was a headline from the Institutional Investors Group on Climate Change (IIGCC) in August this year.

“The Stewardship Code plays a key role in influencing global practice and rigour,” said Laith Cahill, Senior Net Zero Stewardship Specialist, in the paper. “Two-fifths of signatories are head-quartered outside the UK, giving it the international profile to set high standards for stewardship and work as a benchmark for other codes.”

Cahill’s piece mostly concerned itself with questions around net zero actions especially on the topic of collaboration and whether the changes would enable more escalation techniques for groups working together but there were wider administrative fears too.

"Although some might see this as a lowering of intention with regard to sustainability, it's fair to say the proposed new definition allows greater flexibility of application."

Others were also less clear on their support for the changes and made concerns around vagueness in the language known.

"It's interesting to see the FRC's definition of stewardship shift to "sustainable value" focused on clients and beneficiaries, dropping explicit references to "the environment and society”,” said Lindsey Stewart, Director of Investment Stewardship Research and Policy at Morningstar Sustainalytics.

“Although some might see this as a lowering of intention with regard to sustainability, it's fair to say the proposed new definition allows greater flexibility of application for signatories with a wide range of views on what priority sustainability issues should be given," he said. "This will be particularly important to many of the signatories based in the US where pressure to demonstrate client focus on financial outcomes over societal ones has never been higher." 

The consultation is open to 19 February 2025.

 

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