The UK Stewardship Code: From a Model to Playing Catch-Up

From Japan to Holland, responsible investment (‘RI’) frameworks share one thing in common: many take their inspiration from the UK’s Stewardship Code. In 2010, when the UK Code launched, it was the first of its kind in the world. Since then, it has provided a model for numerous other countries’ approaches to defining how companies should be run to benefit their stakeholders and society more broadly.

However, other countries have since moved ahead of the UK “on issues such as ESG integration and resources for stewardship,” according to Jen Sisson, Chief of Staff at the Financial Reporting Council (‘FRC’).

“We looked at the fact that other [countries] had used our code as a starting place and added to it,” Sisson said in a podcast hosted by Jason Mitchell, co-head of responsible investment at Man Group. The resulting new code, the UK Stewardship Code 2020, seeks to play catch-up with these other frameworks, expanding the range of asset classes it engages with and expanding the way ‘stewardship’ is defined.

Another source of inspiration for the latest revision was that it was not only that other countries’ regulatory bodies were moving ahead of the Stewardship Code when it came to RI standards, but also that market best practice was more radical and far-reaching in terms of what companies were demanding of themselves.

The Stewardship Code remains a set of guidelines, recognising that effective stewardship is about interpretation and improvement, rather than box-ticking.

Signatories to the code ought to view the filing of stewardship reports as part of the rhythm of corporate life, according to Claudia Chapman, Corporate Governance Policy Adviser at the FRC, who also appeared as a guest on the podcast. “It’s basically an annual report,” she said, “and ought to be subjected to the same level of scrutiny by investors Indeed, a big driver for the current signatories is investors making signing up a pre-requisite.”

The Stewardship Code’s focus on shaping a best-practice framework rather than setting down prescriptive rules means that it is equally applicable to boutique investment funds and large and complex financial institutions. “Success is about not being afraid of saying: ‘this is what we do and this is why we do it’,” Chapman said. “It’s about moving out of a compliance mindset and making a pitch for good governance.”

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