IIGCC urges FRC to clarify climate engagement position in UK Stewardship Code

The Institutional Investors Group on Climate Change (IIGCC) has urged the Financial Reporting Council (FRC) to consider how the revised UK Stewardship Code can be enhanced to help meet the challenges of the net zero transition, while urging for improved interoperability with other sustainability reporting requirements.

The Code is part of the investment stewardship eco-system in the UK, safeguarding the interests of the public and pension holders by promoting transparency and accountability, and is also adopted by global investors.

Last month, the FRC announced a number of interim changes to the Code following the launch of a fundamental review of it earlier this year.

Immediate changes to the Code are geared towards streamlining reporting requirements, according to the FRC.

Outstanding questions

IIGCC senior net zero stewardship specialist Laith Cahill said that since the Code’s last update in 2019, the landscape for stewardship and reporting has evolved drastically, which has seen both investor needs and regulatory obligations change.

For Cahill, while the changes to the Code represent positive steps ahead of a public consultation, more clarity is required on how it can support climate engagement and be better integrated into the European Union regulatory landscape.

“First and foremost, how will the revised Stewardship Code treat collaborative engagement and escalation? These are both critical elements in investors’ stewardship toolkits. Work done by Climate Action 100+ and more recently the Net Zero Engagement initiative, for instance, has played a part in promoting disclosures and action on climate change from some of the world’s largest corporate greenhouse gas emitters,” he said.

“The FRC changes stipulate that collaborative engagement and escalation need only be reported on ‘where necessary’. This risks framing both as tools of last resort,” he added.

Furthermore, Cahill has urged the FRC to extend cross-referencing to other reporting requirements.

“To be truly game-changing, cross-referencing would extend to other reporting requirements, such as the Taskforce for Climate-related Financial Disclosures and UK Sustainable Disclosure Regulation, increasing interoperability between the plethora of sustainability reporting requirements facing investors,” he said.

“This would fit well with FRC’s stated commitment to consider its ‘positioning’ alongside other regulators and standard setters,” Cahill added.

As part of the review process, the FRC is inviting views from all stakeholders on whether the Code is being used by asset managers, asset owners and other signatories in a way that drives better stewardship outcomes, with the revised Code expected to be published in 2025.

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