In October 2019, the Financial Reporting Council (FRC) published its long awaited update to the UK Stewardship Code. The new Code applies from 1 January 2020.
In this paper, we look at key changes to the code and provide insights for audit leaders across all sectors to consider.
Summary of changes
The 2019 update is a "substantial and ambitious revision" according to the FRC. It integrates expectations for stewardship and investment with a strong focus on activities and outcomes rather than policy statements.
The Code is primarily aimed at institutional investors and sets out principles of good practice for engaging with the companies in which they invest to deliver sustainable value for investors, the economy and society as a whole.
Although it reads very much as a financial services Code it is important and applicable for all sectors.
It is a "comply or explain" addition to the regulatory baseline for stewardship implemented by the Shareholder Rights Directive II and is intended to drive behaviours to exceed minimum standards.
A major update to the previous 2012 version, the Code:
- Focuses on principles
- Emphasises that stewardship is about sustainable value
- Take a holistic approach to the investment community
- Clearly separates expectations for asset owners/managers and service providers
- Reinforces the importance of ongoing engagement
- Increases transparency
- Heightens environmental, social and governance issues, including climate change
- Navigates easily
- Fortifies reporting requirements.
According to Business secretary, Andrea Leadsom: “this Code is an important piece of work by the Financial Reporting Council under its new leadership. It recognises the essential role of effective stewardship in supporting stronger corporate governance, diversity and social environmental priorities. I urge asset managers and owners to lead by example and sign up.”
Drivers of change
A succession of corporate failures and scandals has led to a major shake-up of corporate governance…