What is the UK Stewardship Code?

The UK Stewardship Code is a voluntary code overseen by the Financial Reporting Council (FRC). It applies to asset owners, asset managers and service providers, and aims to set “high stewardship standards for those investing money on behalf of UK savers and pensioners, and those that support them”.

Originally published in 2007, the Code underwent a significant redrafting in 2019, with changes coming into force from January 2020. In 2024, the FRC announced a review of the Code, focusing on its purpose, principles, process and positioning. As well as this, they are considering how the Service Provider Code can support greater transparency of proxy advisors.

The 2024 Review intends to develop an updated definition of stewardship, to support signatories to report in a way that reflects the differences in their operating models, to ensure that the principles reflect the wide range of assets in which signatories may invest, and to consider ways to streamline the reporting and the principles to avoid duplication. Publication of the revised code is expected in early 2025. Some interim changes have already been enacted to reduce the reporting burden and to ensure reports continue to reflect material updates.

The current Code is based on 12 Principles for Asset Owners and Asset Managers, and 6 separate Principles for Service Providers. To become a signatory, firms must complete and publish a Stewardship Report explaining how they apply the relevant Principles over a 12-month period. It is up to individual firms to decide which expectations are relevant to their business and investment type. In line with the ‘apply and explain’ principle, firms should provide an explanation as to why they believe there is a strong reason not to report on any of the Principles.

12 Principles of the UK Stewardship Code

The Principles are divided into four main categories. For each Principle, signatories are required to provide a summary of:

• Context: why they are undertaking an activity

• Activities: what they are doing during the reporting period to fulfil the Principle

• Outcomes: what are the results of the stewardship actions taken

Signatories are required to submit a single annual Stewardship Report, which must be concise and clearly written. Though the Code does not require firms to disclose stewardship activities on a fund-by-fund basis or for each investment strategy, they must explain how stewardship activities differ across funds, asset classes and geographies. Stewardship reports must be reviewed and approved by senior leadership/the board, and signed by the Chair, Chief Executive or Chief Investment Officer.

The Code emphasises the practical application of stewardship and places significant weight on evidence. As such high-quality case studies are a key element of reporting, with a focus on stewardship outcomes as well as activities - firms must clearly explain both the actions they take as well as the results that were achieved, and any progress made against objectives. Actions by themselves are considered inadequate to fulfil the principles.

Though the principles-based format of the Code provides a framework to help firms demonstrate their stewardship activities, it is not a given that firms will be successful in their application. The FRC is rigorous in its assessment of reports and emphasises the importance of authenticity and detailed, high-quality content; vague or unsubstantiated reports will not pass.

The FRC also publishes an regular Review of Reporting in which it comments on how firms are progressing in their approach to the Code as well as setting out forthcoming changes and expectations on signatories. This provides a useful insight into their priorities and areas of focus so it’s well worth reviewing before you submit your application.

If you’d like more information on the UK Stewardship Code or guidance on preparing and submitting your application, please get in touch.