Stewardship Code - Dec 19 Final PDF

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Financial Reporting Council

THE UK
STEWARDSHIP
CODE
2020
PRINCIPLES AT A GLANCE

PRINCIPLES FOR ASSET OWNERS PRINCIPLES FOR SERVICE


AND ASSET MANAGERS PROVIDERS

Purpose and governance 1. Purpose, strategy and culture

1. Purpose, strategy and culture 2. Governance, resources and incentives

2. Governance, resources and incentives 3. Conflicts of interest

3. Conflicts of interest 4. Promoting well-functioning markets

4. Promoting well-functioning markets 5. Supporting client’s stewardship

5. Review and assurance 6. Review and assurance

Investment approach

6. Client and beneficiary needs

7. Stewardship, investment and ESG integration

8. Monitoring managers and service providers

Engagement

9. Engagement

10. Collaboration

11. Escalation

Exercising rights and responsibilities

12. Exercising rights and responsibilities

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CONTENTS

INTRODUCTION 4

HOW TO REPORT
5

PRINCIPLES FOR ASSET OWNERS AND ASSET


7
MANAGERS

Purpose and Governance 8


Investment Approach 13

Engagement 17

Exercising Rights and Responsibilities


21

PRINCIPLES FOR SERVICE PROVIDERS


23

ANNEX 30

UK Regulatory Requirements 30

The FRC’s mission is to promote transparency and integrity in business.


The FRC sets the UK Corporate Governance and Stewardship Codes
and UK standards for accounting and actuarial work; monitors and
takes action to promote the quality of corporate reporting; and operates
independent enforcement arrangements for accountants and actuaries.
As the Competent Authority for audit in the UK the FRC sets auditing and
ethical standards and monitors and enforces audit quality.
The FRC does not accept any liability to any party for any loss, damage or costs
howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from
any action or decision taken (or not taken) as a result of any person relying on or otherwise
using this document or arising from any omission from it.
© The Financial Reporting Council Limited 2019
The Financial Reporting Council Limited is a company limited by guarantee.
Registered in England number 2486368.
Registered Office: 8th Floor, 125 London Wall, London EC2Y 5AS

Financial Reporting Council


INTRODUCTION

Stewardship is the responsible allocation, management


and oversight of capital to create long-term value for
clients and beneficiaries leading to sustainable benefits
for the economy, the environment and society.
The UK Stewardship Code 2020 (the Code) sets high stewardship
standards for asset owners and asset managers, and for service
providers that support them.
The Code comprises a set of ‘apply and explain’ Principles for asset
managers and asset owners, and a separate set of Principles for
service providers. The Code does not prescribe a single approach
to effective stewardship. Instead, it allows organisations to meet the
expectations in a manner that is aligned with their own business model
and strategy.
The investment market has changed significantly since the publication
of the first UK Stewardship Code. There has been significant growth
in investment in assets other than listed equity, such as fixed income
bonds, real estate and infrastructure. These investments have different
terms, investment periods, rights and responsibilities and signatories
will need to consider how to exercise stewardship effectively in these
circumstances.
Environmental, particularly climate change, and social factors, in
addition to governance, have become material issues for investors
to consider when making investment decisions and undertaking
stewardship. The Code also recognises that asset owners and asset
managers play an important role as guardians of market integrity and
in working to minimise systemic risks as well as being stewards of the
investments in their portfolios.

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HOW TO REPORT

All Principles are supported by reporting expectations.


These indicate the information that organisations should
include in their Stewardship Report and will form the
basis of assessment of reporting quality.

When applying the Principles, signatories should


consider the following, among other issues:
• the effective application of the UK Corporate
Governance Code and other governance codes;
• directors’ duties, particularly those matters to which
they should have regard under section 172 of the
Companies Act 2006;
• capital structure, risk, strategy and performance;
• diversity, remuneration and workforce interests;
• audit quality;
• environmental and social issues, including climate
change; and
• compliance with covenants and contracts.

Each Principle has reporting expectations under the headings Activity


and Outcome. Some Principles also include reporting expectations
under the heading Context, which require disclosure of background
information or policies that are necessary in order to understand and
assess the approach taken to stewardship.
Some reporting expectations will be more relevant for asset managers
or those investing directly, while others will be more relevant to asset
owners or those using intermediaries. Organisations must determine
which reporting expectations are relevant and appropriate to their
business or role in the investment community.
In Principle 6, for example, “signatories should disclose an
approximate breakdown of: the size and profile of their membership,
including number of members in the scheme and the average age of
members; OR their client base, for example, institutional versus retail,
and geographic distribution”.

Financial Reporting Council 5


The Code contains more detailed reporting expectations for listed
equity assets. This reflects the relative maturity of stewardship for listed
equity assets. However, signatories should use the resources, rights
and influence available to them to exercise stewardship, however
capital is invested.
Reports should be engaging, succinct and in plain English. They
should be as specific and as transparent as possible without
compromising effective stewardship.
The Report should be a single document structured to give a clear
picture of how the organisation has applied the Code. Relevant
data, diagrams, tables, examples and case studies should be used
appropriately. It should focus on activities and outcomes and provide
enough information to enable the reader to have a good understanding
of the application of the Code without having to refer to information
elsewhere. However, the Report may link to more detailed policies
and disclosures, including against other reporting requirements. Any
additional information should be clear and accessible.
Reports should be fair, balanced and understandable. For example,
reporting should acknowledge setbacks experienced and lessons
learned, as well as successes. Activities to achieve desired outcomes
may take more than a year and may not be completed within an
organisation’s reporting period. Where this is the case, this should be
indicated and progress reported.
The Code recognises that signatories differ by size, type, business
model and investment approach, and do not exercise stewardship
in an identical way. The reporting expectations do not require
disclosure of stewardship activities on a fund-by-fund basis or for each
investment strategy. However, the information provided should give a
clear indication of how stewardship activities differ across funds, asset
classes and geographies proportionately to their operations.
Reports must be reviewed and approved by the applicant’s governing
body, and signed by the chair, chief executive or chief investment
officer.
Once the applicant has been accepted as a Code signatory and the
Report is approved by the FRC, the Report will be a public document
and must be made available on the signatory’s website or, if they do
not have a website, in another accessible form.
Further information on how to submit the Report and the assessment
process can be found on the FRC website.

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PRINCIPLES FOR ASSET OWNERS
AND ASSET MANAGERS

Asset owners and asset managers cannot delegate


their responsibility and are accountable for effective
stewardship. Stewardship activities include investment
decision-making, monitoring assets and service
providers, engaging with issuers and holding them to
account on material issues, collaborating with others,
and exercising rights and responsibilities.
Capital is invested in a range of asset classes over
which investors have different terms and investment
periods, rights and levels of influence. Signatories
should use the resources, rights and influence available
to them to exercise stewardship, no matter how capital
is invested.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

PURPOSE AND GOVERNANCE

Principle 1
Signatories’ purpose, investment beliefs, strategy,
and culture enable stewardship that creates long-
term value for clients and beneficiaries leading
to sustainable benefits for the economy, the
environment and society.

REPORTING EXPECTATIONS

Context
Signatories should explain:
• the purpose of the organisation and an outline of its culture, values,
business model and strategy; and
• their investment beliefs, i.e. what factors they consider important for
desired investment outcomes and why.

Activity
Signatories should explain what actions they have taken to ensure their
investment beliefs, strategy and culture enable effective stewardship.

Outcome
Signatories should disclose:
• how their purpose and investment beliefs have guided their
stewardship, investment strategy and decision-making; and
• an assessment of how effective they have been in serving the best
interests of clients and beneficiaries.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

PURPOSE AND GOVERNANCE

Principle 2
Signatories’ governance, resources and incentives
support stewardship.

REPORTING EXPECTATIONS

Activity
Signatories should explain how:
• their governance structures and processes have enabled oversight
and accountability for effective stewardship within their organisation
and the rationale for their chosen approach;
• they have appropriately resourced stewardship activities, including:
- their chosen organisational and workforce structures;
- their seniority, experience, qualifications, training and diversity;
- their investment in systems, processes, research and analysis;
- the extent to which service providers were used and the services
they provided; and
• performance management or reward programmes have incentivised
the workforce to integrate stewardship and investment decision-
making.

Outcome
Signatories should disclose:
• how effective their chosen governance structures and processes
have been in supporting stewardship; and
• how they may be improved.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

PURPOSE AND GOVERNANCE

Principle 3
Signatories manage conflicts of interest to put the
best interests of clients and beneficiaries first.

REPORTING EXPECTATIONS

Context
Signatories should disclose their conflicts policy and how this has been
applied to stewardship.

Activity
Signatories should explain how they have identified and managed any
instances of actual or potential conflicts related to stewardship.

Outcome
Signatories should disclose examples of how they have addressed
actual or potential conflicts.

Conflicts may arise as a result of:


• ownership structure;
• business relationships between asset owners and asset
managers, and/or the assets they manage;
• differences between the stewardship policies of managers and
their clients;
• cross-directorships;
• bond and equity managers’ objectives; and
• client or beneficiary interests diverging from each other.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

PURPOSE AND GOVERNANCE

Principle 4
Signatories identify and respond to market-wide and
systemic risks to promote a well-functioning financial
system.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• how they have identified and responded to market-wide and
systemic risk(s), as appropriate;
• how they have worked with other stakeholders to promote
continued improvement of the functioning of financial markets;
• the role they played in any relevant industry initiatives in which they
have participated, the extent of their contribution and an assessment
of their effectiveness, with examples; and
• how they have aligned their investments accordingly.

Outcome
Signatories should disclose an assessment of their effectiveness in
identifying and responding to market-wide and systemic risks and
promoting well-functioning financial markets.

Market-wide risks are those that lead to financial loss or affect overall
performance of the entire market and include but are not limited to:
• changes in interest rates;
• geopolitical issues; and
• currency rates.
Systemic risks are those that may lead to the collapse of an industry,
financial market or economy and include but are not limited to:
• climate change; and
• the failure of a business or group of businesses.
Stakeholders may include investors, issuers, service providers,
policymakers, audit firms, not-for-profits, regulators, associations
and academics.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

PURPOSE AND GOVERNANCE

Principle 5
Signatories review their policies, assure their
processes and assess the effectiveness of their
activities.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• how they have reviewed their policies to ensure they enable effective
stewardship;
• what internal or external assurance they have received in relation to
stewardship (undertaken directly or on their behalf) and the rationale
for their chosen approach; and
• how they have ensured their stewardship reporting is fair, balanced
and understandable.

Outcome
Signatories should explain how their review and assurance has led to
the continuous improvement of stewardship policies and processes.

Internal assurance may be by given by senior staff, a designated


body, board, committee, or internal audit and external assurance
by an independent third party.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

INVESTMENT APPROACH

Principle 6
Signatories take account of client and beneficiary
needs and communicate the activities and outcomes
of their stewardship and investment to them.

REPORTING EXPECTATIONS

Context
Signatories should disclose:
• the approximate breakdown of:
- the scheme(s) structure, for example, whether the scheme is
a master trust, occupational pension fund, defined benefit or
defined contribution, etc;

- the size and profile of their membership, including number of


members in the scheme and the average age of members;
OR
- their client base, for example, institutional versus retail, and
geographic distribution;

- assets under management across asset classes and geographies;

• the length of the investment time horizon they have considered


appropriate to deliver to the needs of clients and/or beneficiaries and
why.

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Activity
Signatories should explain:
• how they have sought beneficiaries’ views (where they have done
so) and the reason for their chosen approach;
OR
• how they have sought and received clients’ views and the reason for
their chosen approach;

• how the needs of beneficiaries have been reflected in stewardship and


investment aligned with an appropriate investment time horizon;
OR
• how assets have been managed in alignment with clients’
stewardship and investment policies;

• what they have communicated to beneficiaries about their


stewardship and investment activities and outcomes to meet
beneficiary needs, including the type of information provided,
methods and frequency of communication;
OR
• what they have communicated to clients about their stewardship and
investment activities and outcomes to meet their needs, including the
type of information provided, methods and frequency of communication
to enable them to fulfil their stewardship reporting requirements.

Outcome
Signatories should explain:
• how they have evaluated the effectiveness of their chosen methods
to understand the needs of clients and/or beneficiaries;

• how they have taken account of the views of beneficiaries where


sought, and what actions they have taken as a result;
OR
• how they have taken account of the views of clients and what
actions they have taken as a result;

• where their managers have not followed their stewardship and


investment policies, and the reason for this;
OR
• where they have not managed assets in alignment with their clients’
stewardship and investment policies, and the reason for this.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

INVESTMENT APPROACH

Principle 7
Signatories systematically integrate stewardship and
investment, including material environmental, social
and governance issues, and climate change, to fulfil
their responsibilities.

REPORTING EXPECTATIONS

Context
Signatories should disclose the issues they have prioritised for
assessing investments, prior to holding, monitoring through holding
and exiting. This should include the ESG issues of importance to them.

Activity
Signatories should explain:
• how integration of stewardship and investment has differed for
funds, asset classes and geographies;
• how they have ensured:
- tenders have included a requirement to integrate stewardship and
investment, including material ESG issues; and
- the design and award of mandates include requirements to
integrate stewardship and investment to align with the investment
time horizons of clients and beneficiaries;
OR
• the processes they have used to:
- integrate stewardship and investment, including material ESG
issues, to align with the investment time horizons of clients and/or
beneficiaries; and
- ensure service providers have received clear and actionable
criteria to support integration of stewardship and investment,
including material ESG issues.

Outcome
Signatories should explain how information gathered through
stewardship has informed acquisition, monitoring and exit decisions,
either directly or on their behalf, and with reference to how they have
best served clients and/or beneficiaries.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

INVESTMENT APPROACH

Principle 8
Signatories monitor and hold to account managers
and/or service providers.

REPORTING EXPECTATIONS

Activity
Signatories should explain how they have monitored service providers
to ensure services have been delivered to meet their needs.

Outcome
Signatories should explain:
• how the services have been delivered to meet their needs;
OR
• the action they have taken where signatories’ expectations of their
managers and/or service providers have not been met.

For example:
• asset owners monitoring asset managers and investment
consultants to ensure that assets have been managed in
alignment with their investment and stewardship strategy and
policies; or
• asset managers monitoring proxy advisors to ensure, as far as
can reasonably be achieved, that voting has been executed
according with the manager’s policies; and
• asset managers monitoring data and research providers to
ensure the quality and accuracy of their products and services.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

ENGAGEMENT

Principle 9
Signatories engage with issuers to maintain or
enhance the value of assets.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• the expectations they have set for others that engage on their behalf
and how;
OR
• how they have selected and prioritised engagement (for example,
key issues and/or size of holding);

• how they have developed well-informed and precise objectives for


engagement with examples;
• what methods of engagement and the extent to which they have
been used;
• the reasons for their chosen approach, with reference to their
disclosure under Context for Principle 1 and 6; and
• how engagement has differed for funds, assets or geographies.

Examples of engagement methods include but are not limited to:


• meeting the chair or other board members;
• holding meetings with management;
• writing letters to a company to raise concerns; and
• raising key issues through a company’s advisers.

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Outcome
Signatories should describe the outcomes of engagement that is
ongoing or has concluded in the preceding 12 months, undertaken
directly or by others on their behalf.

For example:
• how engagement has been used to monitor the company;
• any action or change(s) made by the issuer(s);
• how outcomes of engagement have informed investment
decisions (buy, sell, hold); and
• how outcomes of engagement have informed escalation.
Examples should be balanced and include instances where the
desired outcome has not been achieved or is yet to be achieved.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

ENGAGEMENT

Principle 10
Signatories, where necessary, participate in
collaborative engagement to influence issuers.

REPORTING EXPECTATIONS

Activity
Signatories should disclose what collaborative engagement they have
participated in and why, including those undertaken directly or by
others on their behalf.

For example:
• collaborating with other investors to engage an issuer to achieve
a specific change; or
• working as part of a coalition of wider stakeholders to engage on
a thematic issue.
Signatories should provide examples, including
• the issue(s) covered;
• the method or forum;
• their role and contribution.

Outcome
Signatories should describe the outcomes of collaborative
engagement.

For example:
• any action or change(s) made by the issuer(s);
• how outcomes of engagement have informed investment
decisions (buy, sell, hold); and
• whether their stated objectives have been met.
Examples should be balanced and include instances where the
desired outcome has not been achieved or is yet to be achieved.

Financial Reporting Council 19


PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

ENGAGEMENT

Principle 11
Signatories, where necessary, escalate stewardship
activities to influence issuers.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• the expectations they have set for asset managers that escalate
stewardship activities on their behalf;
OR
• how they have selected and prioritised issues, and developed well-
informed objectives for escalation;

• when they have chosen to escalate their engagement, including the


issue(s) and the reasons for their chosen approach, using examples;
and
• how escalation has differed for funds, assets or geographies.

Outcome
Signatories should describe the outcomes of escalation either
undertaken directly or by others on their behalf.

For example:
• any action or change(s) made by the issuer(s);
• how outcomes of escalation have informed investment decisions
(buy, sell, hold);
• whether their stated objectives have been met; and
• any changes in engagement approach.
Examples should be balanced and include instances where the
desired outcome has not been achieved or is yet to be achieved.

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PRINCIPLES FOR ASSET OWNERS AND ASSET MANAGERS

EXERCISING RIGHTS
AND RESPONSIBILITIES

Principle 12
Signatories actively exercise their rights and
responsibilities.

REPORTING EXPECTATIONS
Reporting expectations for listed equity and fixed income investments
are below. In addition, signatories should report on how they have
exercised their rights and responsibilities across other asset classes
they are invested in, where they have the ability to do so, as disclosed
in their reporting against Principle 6.

Context
Signatories should:
• state the expectations they have set for asset managers that
exercise rights and responsibilities on their behalf;
OR
• explain how they exercise their rights and responsibilities, and how
their approach has differed for funds, assets or geographies.

In addition, for listed equity assets, signatories should:


• disclose their voting policy, including any house policies and the
extent to which funds set their own policies;
• state the extent to which they use default recommendations of proxy
advisors;
• report the extent to which clients may override a house policy;
• disclose their policy on allowing clients to direct voting in segregated
and pooled accounts; and
• state what approach they have taken to stock lending, recalling lent
stock for voting and how they seek to mitigate ‘empty voting’.

Financial Reporting Council 21


Activity
For listed equity assets, signatories should:
• disclose the proportion of shares that were voted in the past year
and why;
• provide a link to their voting records, including votes withheld if
applicable;
• explain their rationale for some or all voting decisions, particularly
where:
- there was a vote against the board;
- there were votes against shareholder resolutions;
- a vote was withheld;
- the vote was not in line with voting policy.
• explain the extent to which voting decisions were executed by
another entity, and how they have monitored any voting on their
behalf; and
• explain how they have monitored what shares and voting rights they
have.
For fixed income assets, signatories should explain their approach to:
• seeking amendments to terms and conditions in indentures or
contracts;
• seeking access to information provided in trust deeds;
• impairment rights; and
• reviewing prospectus and transaction documents.

Outcome
For listed equity assets, signatories should provide examples of the
outcomes of resolutions they have voted on over the past 12 months. 

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PRINCIPLES FOR
SERVICE PROVIDERS

Service providers play a key role in the investment


community as they provide services that support
clients to fulfil their stewardship responsibilities. Service
providers applying these Principles include, but are not
limited to, investment consultants, proxy advisors, and
data and research providers.
Activities service providers undertake to support their
clients’ stewardship may include, but are not limited to,
engagement, voting recommendations and execution,
data and research provision, advice, and provision of
reporting frameworks and standards.

Financial Reporting Council 23


PRINCIPLES FOR SERVICE PROVIDERS

Principle 1
Signatories’ purpose, strategy and culture enable
them to promote effective stewardship.

REPORTING EXPECTATIONS

Context
Signatories should explain the purpose of the organisation, what
services it offers, and an outline of its culture, values, business model
and strategy.

Activity
Signatories should explain what actions they have taken to ensure their
strategy and culture enable them to promote effective stewardship.

Outcome
Signatories should disclose an assessment of how effective they have
been in serving the best interests of clients.

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PRINCIPLES FOR SERVICE PROVIDERS

Principle 2
Signatories’ governance, workforce, resources
and incentives enable them to promote effective
stewardship.

REPORTING EXPECTATIONS

Activity
Signatories should explain how:
• their governance structures and processes have enabled oversight
and accountability for promoting effective stewardship and the
rationale for their chosen approach;
• the quality and accuracy of their services have promoted effective
stewardship;
• they have appropriately resourced stewardship, including:
- their chosen organisational and workforce structure(s);
- their seniority, experience, qualification(s), training and diversity;
- their investment in systems, processes, research and analysis*;
and
- how the workforce is incentivised appropriately to deliver services;
• they have ensured that fees are appropriate for the services
provided.

Outcome
Signatories should disclose:
• how effective their chosen governance structures and processes
have been in supporting their clients stewardship; and
• how they may be improved.

* see Annex - Regulatory


requirements for Proxy advisors

Financial Reporting Council 25


PRINCIPLES FOR SERVICE PROVIDERS

Principle 3
Signatories identify and manage conflicts of interest
and put the best interests of clients first.

REPORTING EXPECTATIONS

Context
Signatories should disclose their conflicts policy, which seeks to put
the interests of clients first and minimises or avoids conflicts of interest
when client interests diverge from each other.

Activity
Signatories should explain how they have identified and managed any
instances in which conflicts have arisen as a result of client interests.

Outcome
Signatories should disclose examples of how they have addressed
actual or potential conflicts.

Conflicts of interest may arise from, but are not limited to:
• ownership structure;
• business relationships;
• cross-directorships; and
• client interests diverging from each other.

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PRINCIPLES FOR SERVICE PROVIDERS

Principle 4
Signatories identify and respond to market-wide and
systemic risks to promote a well-functioning financial
system.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• how they have identified and responded to market-wide and
systemic risk(s) as appropriate;
• how they have worked with other stakeholders to promote
continued improvement of the functioning of financial markets; and
• the role they played in any relevant industry initiatives they have
participated in.

Outcome
Signatories should disclose the extent of their contribution and an
assessment of their effectiveness in identifying and responding to
systemic risks and promoting well-functioning financial markets.

Market-wide risks are those that lead to financial loss or affect overall
performance of the entire market and include but are not limited to:
• changes in interest rates;
• geopolitical issues; and
• currency rates.
Systemic risks are those that may cause the collapse of an
industry, financial market or economy, such as climate change.
Stakeholders may include investors, issuers, service providers,
policymakers, audit firms, not-for-profits, regulators, associations
and academics.

Financial Reporting Council 27


PRINCIPLES FOR SERVICE PROVIDERS

Principle 5
Signatories support clients’ integration of
stewardship and investment, taking into account,
material environmental, social and governance
issues, and communicating what activities they have
undertaken.

REPORTING EXPECTATIONS

Context
Signatories should disclose client base breakdown, for example,
institutional versus retail, and geographic distribution.

Activity
Signatories should explain:
• how their services best support clients’ stewardship as appropriate
to the nature of service providers’ business;
• whether they have sought clients’ views and feedback and the
rationale for their chosen approach; and
• the methods and frequency of communication with clients.

Outcome
Signatories should explain:
• how they have taken account of clients’ views and feedback in the
provision of their services; and
• the effectiveness of their chosen methods for communicating with
clients and understanding their needs, and how they evaluated their
effectiveness.

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PRINCIPLES FOR SERVICE PROVIDERS

Principle 6
Signatories review their policies and assure their
processes.

REPORTING EXPECTATIONS

Activity
Signatories should explain:
• how they have reviewed their policies and activities to ensure they
support clients’ effective stewardship;
• what internal or external assurance they have received in relation to
activities that support their clients’ stewardship (undertaken directly
or on their behalf) and the rationale for their chosen approach; and
• how they have ensured their stewardship reporting is fair, balanced
and understandable.

Outcome
Signatories should explain how the feedback from their review
and assurance has led to continuous improvement of stewardship
practices.

Financial Reporting Council 29


ANNEX

UK regulatory requirements
The Code is voluntary and sets a standard that is
higher than the minimum UK regulatory requirements.
Signatories may choose to use their Report to meet
the requirements of the Code and disclose information
to meet other stewardship-related UK regulatory
requirements or international stewardship codes.
However, the FRC cannot provide assurance against all
other requirements in assessing reporting against the
Code.

For asset owners


Occupational pension schemes are required under pension
regulations1 to develop and explain how they have implemented
policies for the exercise of the rights and engagement for all
investments, including how they monitor investee companies and
their voting behaviour. They will also be required to explain how their
equity investment strategy is consistent with their liabilities and provide
information on their arrangements with asset managers.
Insurers and reinsurers are required under the Senior Management
Arrangements, Systems and Controls (SYSC) sourcebook from
the Financial Conduct Authority (FCA) to develop and explain how
they have implemented an engagement policy for their listed equity
investments, including how they monitor investee companies, their
voting behaviour and their use of proxy advisors.
They will also be required to provide information on their arrangements
with asset managers and explain how their equity investment strategy
is consistent with their liabilities. The Pensions Regulator encourages
adherence to the Code in its guidance for trustees of defined benefit
and defined contribution schemes.

1
The Department for Work and
Pensions (DWP) issues regulations
for occupational pension funds and
the Ministry of Housing, Communities
and Local Government (MHCLG)
issues regulations for local government
pension schemes. See table in Annex.

30 Guidance
2020 UK Stewardship
on Board Effectiveness
Code 2018
Asset managers
Asset managers are required under the FCA Conduct of Business
Sourcebook (COBS) to develop and explain how they have
implemented an engagement policy for their listed equity investments,
including how they monitor investee companies, their voting behaviour
and their use of proxy advisors.
Firms are required under the FCA COBS to disclose the nature of their
commitment to the Code or, where they do not commit to the Code,
their alternative investment strategy (COBS Rule 2.2.3).

Proxy advisors
Proxy advisors are required under the Proxy Advisors (Shareholders’
Rights) Regulations 2019 (PA Regulations), supervised by the FCA,
to publicly disclose a code of conduct and explain how they have
followed it. Proxy advisors may wish to use the Principles for Service
Providers as their code of conduct.
They are also required to disclose and implement a conflicts of interest
policy and give assurance about the accuracy and reliability of their
advice.

Financial Reporting Council 31


Signatory Type Regulation or rule Regulator

Great Britain
• The Occupational Pension Schemes (Investment) Regulations 2005
• The Occupational and Personal Pension Schemes (Disclosure of
Information) Regulations 2013
As amended by:
• The Pension Protection Fund (Pensionable Service) and Occupational
Pension Schemes (Investment and Disclosure) (Amendment and
Modification) Regulations 2018
• The Occupational Pension Schemes (Investment and Disclosure)
(Amendment) Regulations 2019
Asset owners
– trustees of
occupational Northern Ireland
pension
schemes • The Occupational Pension Schemes (Investment) Regulations (Northern The
Ireland) 2005 Pensions
Regulator
• The Occupational and Personal Pension Schemes (Disclosure of
Information) Regulations (Northern Ireland) 2014
As amended by:
• The Pension Protection Fund (Pensionable Service) and Occupational
Pension Schemes (Investment and Disclosure) (Amendment and
Modification) Regulations (Northern Ireland) 2018
• The Occupational Pension Schemes (Investment and Disclosure)
(Amendment) Regulations (Northern Ireland) 2019

Asset owners • Investment guidance for defined benefit pension schemes


– trustee • A guide to investment governance (for defined contribution pension
boards schemes)

Asset
owners – • Senior Management Arrangements, Systems and Controls (SYSC)
insurers and sourcebook 3.4 SRD Requirements
reinsurers

Asset • Conduct of Business Sourcebook (COBS) 2.2B SRD requirements and


managers 2.2.3 Disclosure of commitment to the FRC’s Stewardship Code Financial
Conduct
Authority

• The Proxy Advisors (Shareholders’ Rights) Regulations 2019


Proxy
• Decision Procedure and Penalties Manual
advisors
• Enforcement Guide

32 Guidance
2020 UK Stewardship
on Board Effectiveness
Code 2018
Financial Reporting Council

FINANCIAL REPORTING COUNCIL


8TH FLOOR
125 LONDON WALL
LONDON EC2Y 5AS

+44 (0)20 7492 2300

www.frc.org.uk

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