Stewardship Code

The Stewardship Code is a part of UK company law concerning principles that institutional investors are expected to follow. It was first released in 2010 by the Financial Reporting Council ('FRC'), and in 2019 the FRC released an updated edition of the Stewardship Code.

The UK Stewardship Code (“Code”) is a voluntary code for asset managers (investment managers), asset owners, and service providers (such as proxy advisers, investment consultants, and data providers). Its stated aim is to encourage active and engaged monitoring of corporate governance for the interests of beneficiaries. Specifically, the Code aims to promote 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. In late 2019, the FRC substantially updated the original 2010 Code introducing new principles for different signatory groups as well as introducing new thematic issues centered on environmental, social, and governance (ESG) factors. The FRC also introduced a new reporting process.

The Code sets stewardship standards for asset owners and fund managers (asset managers), and for service providers that support them.^[1]

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 (FRC Stewardship Code) The information is also sent to the Financial Reporting Council, which links to the information provided to it. From March 2021, organisations applying to become signatories to the Code are required to submit an annual stewardship report to the FRC which details how signatories have applied the Code over a 12-month period detailing both their stewardship activities and the resulting outcomes. Unlike the previous edition, the new Code covers all types of investments, not just equities.

The compulsion to, at the very least, explain non-compliance with the Code follows from the Financial Services and Markets Act 2000 section 2(4) and the Listing Rules.

The updated Principles for Asset Owners and Managers are:

The new Principles for Service Providers are:

• UK company law
• UK Corporate Governance Code
• Say on pay
• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

• BW Heineman, 'A "Stewardship Code" for Institutional Investors' (18 January 2010) Harvard Business Review blog
• M Johnson, 'Global investment groups back UK shareholder code' (18 October 2010) Financial Times
• E McGaughey, 'Do Asset Managers and Banks Control Share Voting Rights on Your Money?' (5 June 2017) Oxford Business Law Blog
• E McGaughey, 'Does Corporate Governance Exclude the Ultimate Investor?' (2016) 16(1) Journal of Corporate Law Studies 221

Government reports

• Myners Report (2001), Institutional Investment in the United Kingdom: A Review on institutional investors, Pdf file here and Review of Progress Report here
• Myners Review (2004) Myners principles for institutional investment decision-making: review of progress .pdf here
• Walker Review (2009) in response to the financial crisis, and focusing on institutional investors, .pdf document

• The Stewardship Code 2020
• The Stewardship Code 2012