The UK Stewardship Code 2020: Are you prepared for a major step up?

Charlie Liechti, Vanessa Bingle

On 1 January 2020, a revised UK Stewardship Code was launched by the Financial Reporting Council (FRC). The revision is focused on increasing expectations of stewardship policy, activities and outcomes and how these deliver sustainable value to stakeholders. In practice, the refresh has resulted in a significant step up in expectations of signatories from the previous code. What was previously considered market-leading is now the market baseline.

With eight months having passed, and another eight to go until the first round of reporting, we are yet to see the industry change needed to step up to these new and increased standards. While this presents a risk for organisations not taking the new Stewardship Code seriously, it also presents an exciting commercial opportunity for those organisations willing to step forward and lead.

Changes in the Stewardship Code

The changes in the Code have been reported here by the FRC, but we talk through some of our key observations below.

1. Signatories must give a clear indication of how stewardship activities differ across funds, asset classes and geographies. This means that Managers must be able to communicate and demonstrate their stewardship activities across all of the asset classes they invest in, not only equities. Managers must report at this breadth to satisfy the Stewardship Code requirements.

2. The intended audience has been extended to include service providers, and clarifies the expectations of Asset Owners, as distinct from Asset Managers. This means that there is increased pressure on Managers from Asset Owners who need to fulfil their own specific stewardship responsibilities under the new Code. Asset Managers should be prepared for a material change in expectations from clients, such as Owners requesting data relating to their specific portfolios, rather than being satisfied with data and disclosures at the Manager level.

3. There is an increased emphasis on outcomes throughout the Code.  Asset Managers and Asset Owners are required to report on their specific stewardship activities and outcomes over a period of 12 months. The expectation here has shifted and reporting a high number of engagement activities will not be considered a “success”. Managers are being challenged to strengthen their engagement process.

The bar has been raised, and Managers and Owners who hope to be listed as a signatory in 2021 should prepare accordingly.

What do you need to do?

1. Evolve your process

Managers and Owners need to increase the rigour in their stewardship process: setting clear, up-front measurable objectives, tracking these over time, and reporting against them. Managers need to demonstrate conviction in stewardship as a tool in the investment process, clarifying the link between stewardship activity and investment decisions, and being unafraid to follow through where engagement isn’t delivering the necessary change.

2. Upgrade your technical infrastructure and start collecting data

To satisfy the requirements for disclosure to clients, a combination of quantitative data and qualitative examples will be required. Case studies are no longer enough, and clients increasingly expect quantitative data to underpin the messaging. If the activities, outcomes and data for your activities have not been gathered succinctly at the time of action, it will be very difficult to backfill. Your investment process and technology need to support this data collection.

3. Plan how to distribute your data at scale

Prepare for the significant increase in Asset Owner expectations, building the capability to show portfolio level stewardship data across all mandates. Asset Managers have a great opportunity to show leadership by being proactive in proposing the structure and content of best-in-class reporting. Waiting for clients to define what they want will lead to servicing multiple bespoke requests, incurring significant time, cost, and operational pain. Prepare to disseminate this data at scale and you can stay ahead of the curve.

The changes for the 2020 Stewardship Code are not superficial and cannot be ignored. The increased emphasis on transparency and accountability is significant and there has been a clear progression from “tell me” to “show me”. Signatories now have a responsibility to report far beyond policies, and provide detailed, data-driven reporting on stewardship activities and outcomes across all asset classes and geographies. To be able to meet these responsibilities and produce an effective report, Managers need to seriously consider the capabilities of their data collection, visualisation and overall infrastructure, in addition to the stewardship process itself.

The bar has been raised, and Managers and Owners who hope to be listed as a signatory in 2021 should prepare accordingly.


Get in touch

If you’d like to discuss support for preparing for these changes, or any other upcoming ESG and Stewardship related challenges faced by your organisation, please get in touch

About the Authors

Charlie Liechti ESG
Charlie Liechti
Consultant, ESG SME

Charlie supports across workstreams of Alpha's ESG & Responsible Investing proposition and manages the approach to ESG Content. Since joining in 2018, Charlie has worked with Asset and Wealth Managers across a range of Target Operating Models design projects, most recently supporting an Asset Manager with an ESG health check assessment, and definition of approach to ESG and Responsible Investing, with associated roadmap. Charlie initially developed experience in sustainable investing strategy definition and ESG integration when co-founding a sustainable investment fund at University.

Vanessa Bingle ESG
Vanessa Bingle
Senior Manager, ESG SME

Vanessa heads Alpha's ESG & Responsible Investing proposition. Since joining Alpha in 2018, Vanessa has led a variety of investment-focused projects with asset managers and asset owners, including helping to design and embed an organisation's ESG vision across investment- and client-facing activities, post-merger integration of investment teams, and designing investment research collaboration approaches. Before joining Alpha Vanessa worked for six years as an Investment Consultant.