The Financial Reporting Council (FRC) today announced immediate changes to reduce the amount of reporting involved in being a signatory of the UK Stewardship Code.
The changes were announced in an update after the regulator completed the first phase of a fundamental review of the Code. It said it was making significant revisions to the application process for the Code and committing to five priority areas of review as it continues its revision.
Today’s announcement comes after the King’s Speech last week revealed that the new Labour government’s plans to transform the FRC into a new regulator, the Audit, Reporting and Governance Authority (ARGA), resurrecting efforts that were shelved last November by the previous Conservative government.
The next steps for the FRC’s review of the Stewardship Code are a formal consultation later this year. However, “given the significance” of the changes it has proposed, it also said it will be hosting a further phase of focused engagement with its stakeholders throughout August and September.
The immediate changes announced today are to:
- remove the requirement to annually disclose all context reporting expectations, except for new reports or material changes;
- remove the requirement to annually disclose against ‘activity’ and ‘outcome’ reporting expectations for some principles;
- explicitly allow use of content from previous reporting and cross-referencing of such reports;
- set clear expectations of what is considered an ‘outcome’ for stewardship purposes;
- emphasise the ability to exercise reporting against principles 10, collaborative engagement, and 11, escalation ‘where necessary’.
“Reducing the reporting burden is a good thing, but it’s important that investors continue to report on stewardship outcomes”
Will Martindale, managing director at consultancy Canbury Insights
Richard Moriarty, chief executive officer of the FRC, said the UK Stewardship Code was “an important driver of the UK investment stewardship eco-system” as well as being adopted by global investors, but that “it is right that we continue to challenge ourselves to ensure that the Code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets”.
Lindsey Stewart, director of investment stewardship research and policy at Morningstar Sustainalytics, said that sentiment toward the Stewardship Code was positive overall, but “a number of preparers of Stewardship Code reports have often mentioned that the current reporting format appears to require a considerable amount of repetition of information provided in other reports, or annual updates on policies and activities that may have changed little since the last report”.
“It looks like the FRC has listened to that feedback and taken some practical steps to ease the impact of those requirements,” he said.
“Anything that enables stewardship professionals to devote more time to engaging with companies and other issuers instead of preparing reports has to be a good thing.”
Will Martindale, managing director of consultancy Canbury Insights and former head of sustainability at investment house Cardano, said he suspected that the changes to reporting against principles 10 and 11 of the Code meant signatories that had not engaged collaboratively or escalated any engagements during the year would not be penalised, and that he imagined this was targeted at US-based managers concerned with breaches of anti-trust laws.
“The risk is that it says to the market, it’s OK not to collaborate, it’s OK not to escalate, which in my view, are critical for effective stewardship,” he wrote on social media.
“And reducing the reporting burden is a good thing, but it’s important that investors continue to report on stewardship outcomes, and that there remains a requirement for continuous improvement.”
There are 289 signatories to the Code following the latest application round, representing £50.3trn in assets under management. This signatories include 198 asset managers, 72 asset owners, and 19 service providers.
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