Financial Reporting Council Considers Revising Stewardship Code
The Financial Reporting Council (FRC) is proposing to eliminate references to “the environment and society” in its definition of good stewardship for institutional investors.
At present, the FRC characterizes stewardship as “the responsible allocation, management, and oversight of capital, aimed at generating long-term value for clients and beneficiaries, which leads to sustainable benefits for the economy, the environment, and society.”
However, some signatories of the UK stewardship code have expressed concerns that this language suggests that profitability must always generate additional social benefits. The FRC acknowledges that while some investors might prioritize both financial returns and societal benefits, “it is up to each signatory to define their specific investment goals.”
In response to this feedback, the FRC intends to revise its stewardship definition to read: “the responsible allocation, management, and oversight of capital to create long-term sustainable value for clients and beneficiaries.”
According to Richard Moriarty, the chief executive of the FRC, “The revised definition emphasizes that the core aim of stewardship is to provide sustainable long-term value for beneficiaries, while recognizing the possibility of positive social and environmental outcomes.”
He added, “This change is intended to provide clarity and flexibility for signatories, allowing them to define the factors that align with their investment objectives and demonstrate how their stewardship practices support these goals. We are engaging with stakeholders to assess whether these adjustments will better facilitate growth and investment.”
The UK stewardship code sets forth standards for asset managers, pension funds, and insurance providers to clearly communicate how they are managing investors’ funds and to prevent unethical decision-making practices.
This voluntary code currently has 287 signatories, collectively overseeing approximately £50 trillion in assets. Notable signatories include Legal & General, JP Morgan, Goldman Sachs, and Abrdn.
This proposed amendment is part of a series of “significant updates” to the code that will be discussed in the forthcoming weeks. The FRC indicates these changes aim to “simplify reporting requirements and lessen the burdens for signatories,” with hopes of facilitating economic growth.
Some members of the financial community have voiced concerns that the stewardship code has increased their regulatory load, potentially discouraging investments in UK enterprises.
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