

Asset owners increasingly want asset managers to verify their stewardship activities before they award investment mandates, according to the Financial Reporting Council watchdog.
The FRC said it has heard from asset owners that they want to see managers’ stewardship assurance reports, prepared under new guidance from accounting body the ICAEW. And asset owners were starting to include them in tenders.
The ICAEW, the Institute of Chartered Accountants in England and Wales, released guidance on stewardship reporting in March, as a supplement to its existing AAF 01/06 standard.
“While take‐up to date has been limited, the FRC has heard from asset owners that they are requesting to see their managers’ AAF reports and, from managers, that asset owners are beginning to include this in their tender documents when awarding mandates,” the FRC said in a new report. The seven-principle Stewardship Code was launched in 2010 and now has 234 signatories.
“The involvement of asset owners is critical because of their role in awarding investment mandates,” the report said. “If asset owners, as clients, make it clear to their fund managers what they expect by way of stewardship, their managers will have a real incentive to deliver.”
The FRC said there is some confusion among asset owners about the term ‘stewardship’ – with some equating it solely with socially responsible investment. “Greater clarity” on the term would be desirable.
But it said that the “critical point” is getting the mandate right and recognising the roles played by different players in the investment chain; adding that feedback has suggested the Code is not clear enough on this point. It would consult on this issue next year.On collective engagement, the watchdog said concerns about acting in concert needed to be addressed – and that it would support a review at the European level on this.
Investor statements on collective engagement focused on membership of collective bodies, which the FRC says “skirts round the main reason for this principle, which is the need for investors to be able to join forces at critical moments to ensure that boards acknowledge and respond to their concerns”. It called for a “more strategic approach” by shareholders and greater leadership within the industry.
Few Stewardship Code statements detail the use of proxy voting agencies, the FRC said. With proxy advice now being actively debated within the European Union, and with some member states pushing for regulation, the FRC said investors would need to show that they are using voting recommendations “responsibly”. This would “help alleviate pressure for excessively prescriptive regulation of these agencies”.
The FRC also complained that signatory statements are often hidden on firms’ websites and that more than 40% of them provide no contact information. The body said it was pleased at the interest now being shown in stewardship by investment consultants, in an environment of large pension fund deficits and where “busy trustees are not always equipped to hold their asset managers to account”.
Going forward, the FRC would clarify the Stewardship Code’s language on conflicts of interest, collective engagement, and the use of proxy voting agencies, and possibly include a recommendation on stock lending disclosure.