ISS delisted from UK stewardship code by reporting regulator

Proxy adviser and corporate governance specialist ISS is one of six firms delisted from the UK Stewardship Code by the Financial Reporting Council (FRC) following the latest round of applications.

Norway’s Storebrand Asset Management was also delisted, as were France’s TOBAM, Atlas Infrastructure, Ardea Investment Management and Teviot Partners. Institutions can be delisted if the quality of their reporting falls and they fail to take FRC feedback into account, or if they choose not to reapply.

The FRC declined to comment on individual cases.

A spokesperson for Ardea confirmed that the firm had failed to meet FRC standards despite reapplying, and said it was “very disappointed” by the decision. The spokesperson said Ardea would be looking to take the FRC’s “extremely detailed” feedback on board and would reapply at the next reporting round.

They added that the main challenge for Ardea is that the firm’s investment approach centres around investing in government bonds, and while the FRC rules require disclose of improvement by issuers, this can be difficult to secure for many sovereign debt issuers.

Asset managers, owners and service providers that sign up to the stewardship code are required to reapply every year during one of two application rounds.

The FRC, the UK’s reporting regulator, is notoriously tough on standards. It rejected one-third of applicants in the first round after revamping the code in 2021.

In the latest round of applications, 105 institutions applied, of which 88 were successful. This includes 24 signatories making their first appearance on the list, including Candriam, Brandywine, CBRE Investment Management and insurer Royal London, whose investment management wing was already a signatory.

The 254 current signatories are split between 179 asset managers, 58 asset owners and 17 service providers. Between them, they manage £46.4 trillion ($55.9 trillion; €52.3 trillion), with the newest members contributing £5.7 trillion to the total.

Brown Advisory also made its first appearance in the list. Head of sustainable investing Carey Buxton told Responsible Investor that the firm welcomed the FRC’s commitment to promoting stewardship in the investment industry and was “delighted” to have made the cut.

An ISS spokesperson said the firm “remains committed to adhering to the Code principles and to serving our clients and their stewardship needs. We look forward to reapplying prior to the next reporting deadline of April 30.”

TOBAM declined to comment. The other delisted institutions had not responded to a request for comment at the time of publication.

FCA challenged

In other UK regulatory news, campaign group ClientEarth is seeking judicial review of the Financial Conduct Authority’s (FCA) decision to approve the prospectus of oil and gas company Ithaca Energy.

ClientEarth has filed a case at the UK’s High Court alleging that a discussion of climate risks to the oil and gas industry in the prospectus fails to detail how these risks affect the company specifically and how significant such risks are.

Robert Clarke, accountable finance lawyer at ClientEarth, said: “One of the financial regulator’s main duties is to protect investors. A key way it does that is by ensuring that companies that apply to list on the London Stock Exchange adequately disclose the risks associated with their activities, including climate-related risks, in the prospectus as required by law.

“In the case of Ithaca’s listing, we believe the regulator has failed when it comes to this fundamental function by ultimately waving through Ithaca’s prospectus even though legal requirements have not been met.”

ClientEarth said it had written to the FCA twice to raise concerns about the inadequate disclosures in Ithaca’s prospectus. The company listed in November last year in the UK’s largest IPO of 2022.

An FCA spokesperson said ClientEarth needed to obtain permission from the court in order to bring the claim, and that it intended to oppose this permission being given.

A spokesperson for Ithaca said the firm noted the FCA’s response. “At this stage, it would not be appropriate for us to comment further,” they added.

While such cases are rare, they are not unknown. In 2006, oil and gas company Yukos Oil sought a judicial review of a decision by the FCA’s predecessor, the Financial Services Authority, to approve the prospectus of Russian state-owned oil company Rosneft ahead of its IPO. The claim was denied.