The Financial Reporting Council (FRC) has dropped the Tier 3 category for Stewardship Code signatories after half of the asset managers deemed to have the weakest statements on stewardship improved their reporting and the other half quit the code.

In November last year the FRC assigned asset managers to one of three “tiers” based on the quality of their reporting on their stewardship approach.  

The Stewardship Code is a voluntary set of principles designed to encourage asset managers and other investors to engage with the companies in which they invest and exercise voting rights.

Tier 3 was the lowest tier, for signatories seen as needing to make significant reporting improvements to ensure their approach was more transparent.

Forty asset managers were assigned to this category, and were given the choice of either improving their reporting or being removed from the list of code signatories.

Of these, around 20 improved their reporting to a Tier 1 or Tier 2 standard, while the others decided to remove themselves from the list.

The FRC’s decision comes as it prepares to review the Stewardship Code. It intends to ask “broad initial questions” about its approach to the review as part of a formal consultation of its corporate governance code that it will launch later this year.

A detailed consultation on specific changes to the Stewardship Code will be held next year.

Luke Hildyard, policy lead for stewardship and corporate governance at the Pensions and Lifetime Savings Association, said the FRC’s decision to drop Tier 3 was an “understandable measure”.

“[Tiering] was always going to be a tricky process, as those signatories that fall into the lowest tier were likely to resign, on the basis that being a non-signatory sounds better than being classified in the third tier,” he said.

He encouraged the FRC to follow up on this step by promoting awareness of the code so that investors understood the difference between signatories and non-signatories, and raising the code’s standards so that being a signatory became more meaningful.