Asset owners become more proactive once they sign up to the UK Stewardship Code, according to a report published this week by the Financial Reporting Council (FRC).

The investigation, which took place in 2021, is the first to monitor the effectiveness of the code following its revision in 2019. It showed that asset owners are placing more emphasis on the need to move beyond policy, and are more comfortable requesting evidence of activities and outcomes after becoming signatories.

“Asset owners feel that the code has given them a bit more confidence, and the mandate, to challenge and hold to account the asset managers more,” said Claudia Chapman, head of stewardship at the FRC.

The study, entitled ‘The influence of the UK Stewardship Code 2020 on practice and reporting’, differed from the FRC’s own research, and from individual stewardship code applicant reports, by concealing respondents’ identities.

The aim of this approach was to promote transparency. “Our hope was that respondents would be much more candid and honest with an independent third party about their true practices and reporting than what you might see in a public report,” Chapman said .

Researchers from data firm Minerva Analytics, Durham University and Kings College London, ran an online survey of 55 investment organisations, four of which were asset owners and 51 were asset managers. The researchers also conducted interviews with 18 asset managers and nine asset owners. All respondents were applicants to the code, which includes 38 asset owners among its 199 signatories.

Several other findings suggested the code is making a separate impact from other stewardship or ESG policies. For example, the study showed that the profile of stewardship activities had risen higher up the management hierarchy in many respondent organisations.

“If there are significant issues in relation to stewardship, the chief investment officer will now look at those. It is reported that the code has helped to influence that increase in oversight,” said Chapman.

Many organisations in the sample reported that stewardship by governance teams had greater influence in the organisations. All respondents identified some form of organisational restructuring to better integrate stewardship within their investment decision-making – a new requirement of the code.

“If we had not put that requirement in, I think the pace of change would have been much slower,” Chapman added.

Typically, large asset managers had separate ESG and stewardship teams, which worked more closely with specialist investment teams. In contrast, stewardship responsibilities were embraced directly by the investment team of small asset managers.

Respondents also reported increases in the resourcing of stewardship, mostly dedicated to the growth of stewardship teams and use of external experts. Although resourcing is still considered to be a challenge, participants in both the survey and interviews were largely positive about the future, expecting growth in staffing and research budgets.

In addition, the FRC has noted the professionalisation of stewardship and corporate governance specialisations and qualifications, and the development of career paths in the field.

Chapman indicated that the perception arising from an organisation’s absence from the code could stimulate new applications. “Some interviewees felt that […] the fact that there was a threat that they may not have been on the list of signatories was quite significant to their reputation as an organisation. That was really encouraging,” she said.

The FRC would like to see more master trusts among the code’s signatories, she added.

As the study was released, Scottish Widows made an announcement urging all its asset managers to become signatories to the UK Stewardship Code by 2024.

“We have a responsibility to continue finessing our stewardship approach to reflect the increasing need for active ownership of businesses throughout the world to enable them to become more sustainable,” said Maria Nazarova-Doyle, the insurer’s head of pension investments and responsible investments.

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