ESG InvestingDec 1 2021

FRC receives more stewardship code applications than expected

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FRC receives more stewardship code applications than expected
Nic Bothma/EPA
BySally Hickey

The Financial Reporting Council said it has received significantly more applications than expected for the second round of its UK Stewardship Code.

A further 100 firms applied to be a signatory to the code ahead of the October deadline, alongside the 125 signatories that were approved and published in September.

The FRC is now analysing the applications and will announce the results of this in the first quarter next year.

Sir Jonathan Thompson, chief executive of the FRC, said: “We have received over 100 applications for our October
deadline – significantly more than we expected.

"This demonstrates the growing importance and attention paid to stewardship issues – particularly by clients and beneficiaries.”

The FRC published the figures in its analysis of the reports submitted by the first signatories, called 'Effective Stewardship Reporting: Examples from 2021 and expectations for 2022'.

It said it had seen some good reporting on governance, resourcing, and the integration of stewardship with investment but wants to see improvements to reporting on how signatories are managing systemic risks as well as their approach to stewardship in asset classes other than listed equities.

Mark Babington, executive director of regulatory standards at the FRC, said stewardship played a crucial role in ensuring that investments are responsibly managed to create long-term value for savers and pensioners, and wider benefits for the economy, the environment and society. 

“The pandemic and climate crisis have highlighted the importance of investors using the rights and opportunities available to them to engage with companies on their performance and especially environmental, social and corporate governance issues.”

The FRC commended the successful signatories for their applications, saying there were “good efforts” from many applicants on encouraging disclosures on governance, resourcing and the integration of stewardship and ESG factors into investment decision making.

The council added the applications had performed more poorly on how firms manage stewardship-related conflicts of interest, how managers assure their stewardship activities, and how they monitor service providers operating on their behalf.

The new Stewardship Code was published in late 2019 and comprises “apply and explain” principles for asset managers and asset owners. It also includes a separate set of principles for service providers that are higher than the minimum UK regulatory requirements.

The first round of applications saw 189 firms applying, with 125 organisations making the list. This represents £20tn in assets under management.

However, more than 60 applicants did not make the list, including Schroders, JPMorgan Asset Management and State Street Global Advisors.