FRC Announces Five New Priority Areas for Revised UK Stewardship Code Governance

On July 22, 2024, the Financial Reporting Council (FRC) announced significant revisions to the UK Stewardship Code, focusing on five new priority areas. The announcement follows FRC’s engagement with over 1,500 stakeholders earlier this year. The revisions aim to enhance the effectiveness of the Code in supporting UK capital markets, reducing reporting burdens and driving better stewardship outcomes.  

The FRC will specifically focus on the following themes in the new phase of the Code’s revision: 

·       Purpose – The FRC will take into account all stakeholder views and set out its expectation of what defines effective stewardship, what this looks like in practice, and how reporting against the Code can help to deliver this. 

·       Principles – The FRC will consider what reporting will be necessary to deliver on a renewed purpose of the Code. 

·       Proxy Advisors – The FRC will carefully consider how the Code might support greater transparency of how proxy advisors operate. 

·       Process – The FRC will advance proposals to reduce the reporting burden currently associated with being a Code signatory and ensure that information included in reports is useful and accessible to all underlying investors and other stakeholders.

·       Positioning – The FRC will work closely with other regulators such as the Department for Work and Pensions (DWP), the Pension Regulator (TPR) and the Financial Conduct Authority (FCA) to support clarity in understanding the revised Code and its successful implementation. The Code will continue to support the objectives of those other regulators to avoid any confusion and duplication that signatories may encounter.

The FRC will also introduce five changes to reduce the reporting burden on existing signatories to apply during the next application window (31 October 2024): remove the requirement to annually disclose all ‘Context’ reporting expectations; remove the requirement to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some principles; allow the use of content from previous reporting and cross-referencing; set clear expectations of what is considered an ‘Outcome’ for stewardship purposes; and emphasize the ability to exercise reporting against Principles 10, collaborative engagement, and 11 escalation ‘where necessary’.