New UK stewardship code’s fit for asset owners questioned

The chief responsible investment officer of the Church of England Pensions Board (CEPB) has said it will discuss with other UK asset owners if they need to form their own set of stewardship expectations due to concerns about a revised Stewardship Code that was unveiled today by its overseer, the Financial Reporting Council (FRC).

The Pensions Regulator (TPR) and the asset management watchdog have backed the final new Code.

Writing on LinkedIn, Adam Matthews said CEPB would be weighing up whether the Code remains fit for purpose and continues to serve their members.

“As with all voluntary codes, it depends on those that independently decide if it is a credible code to wish to expend resource reporting against it,” he said. “This is a considerable investment of time and resource on behalf of those we serve as a pension fund.”

Matthews went on to signal that while he was not rejecting the updated code outright, he remained cautiously sceptical.

“As such we will be reflecting carefully as a pension fund if the changes to the code reflect the feedback, we and other pension funds provided and if the code best serves our members’ long-term interests.”

“We will also be engaging in discussion with peer UK asset owners before we make a judgment if this remains a credible code or whether it is time for UK asset owners to come together to define their own expectations and those of their fund managers that serve us,” he added.

TPR, FCA support

The FRC launched a fundamental review of the Stewardship Code last year, flagging a need to ensure it was still useful “while not unduly contributing to reporting burdens”.

It was met with pushback from some investors about proposals to drop explicit references to ‘environment and society’ in a new definition of stewardship, although others were pleased about the change.

Concerns had also been expressed that streamlining the Code would reduce the quality of disclosures and damage the Code’s reputation.

“The Code enables owners to access high-quality information about how their assets are being managed”

Sacha Sadan, director of sustainable finance at the Financial Conduct Authority

In its feedback statement today, the FRC revealed that it had stuck with the top-line definition it had proposed, but had changed some of the language, including so that the supporting text refers to the Companies Act by using wording that investors “[have] regard to the economy, the environment and society, upon which beneficiaries’ interests depend”.

The FRC said this was “to demonstrate this as key to paying pensions over decades”.

It also confirmed that reporting requirements have been streamlined, with fewer principles and concise guidance. Signatories can now choose to submit separate or combined reports and only need to submit certain information every four years.

The new code also introduces specific principles for different groups, such as asset owners, managers, proxy advisors, and consultants. Earlier this year, the FRC said there were almost 300 signatories to the code, including 199 asset managers, 77 asset owners and 21 service providers.

Julian Lyne, interim executive director of market oversight at TPR, today said: “It is vital trustees consider using resources such as the Stewardship Code to manage systemic risk, including climate risk, and improve their investment governance. We would encourage all workplace pension schemes to sign up.”

Sacha Sadan, director of sustainable finance at the Financial Conduct Authority, said the new code represented a strong, industry-wide commitment to improving transparency in stewardship practices.

“It enables owners to access high-quality information about how their assets are being managed,” he said.

Andrew Ninain, director of stewardship risk and tax at the Investment Association, the UK asset manager trade body, said the FRC’s final Code had “addressed concerns of the industry on the use of the term sustainable, the frequency of reporting and feedback process, and gives current signatories a year to transition to the new Code”.

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