Upcoming launches of Stewardship Codes in several countries including Singapore, Brazil and South Korea are part of a broader move towards global adoption of stewardship rules as increasingly, regulators recognise the role of investors as enforcers, a leading industry expert said.
Kerrie Waring, executive director of global governance body ICGN, said the recent proliferation of Stewardship Codes is reminiscent of the corporate governance code movement witnessed over a decade ago.
By 2020, she expects most major capital markets to adopt a Stewardship Code, or similar instrument.
“The 2008 financial crisis was a game changer for investors. It shone a spotlight on them and their role in overseeing the governance of companies – ultimately as a mechanism to preserve and enhance long-term value,” said Waring.
She noted that there were multiple initiatives promoting the importance of investors as “vital guardians of good governance” – national stewardship codes, regional mandates such as the European Shareholder Rights Directive and global standards such as the G20/ OECD Principles of Corporate Governance and ICGN’s own Global Stewardship Principles.
“All help to drive interaction between companies and investors and their mutual responsibility to drive long-term sustainable value,” she added.
The first Stewardship Code was published in 2010 by the UK’s Financial Reporting Council (FRC) in response to criticism about the role played by institutional investors in the run-up to and during the 2008 financial crisis.The code was aimed at improving the quality of engagement between asset managers and companies.
Following the publication of the UK code, other countries followed suit with their own codes including the Netherlands, South Africa, Switzerland, Canada, Japan, Kenya and Italy.
In 2011, the European Fund and Asset Management Association provided a framework of six high-level principles and best practice recommendations for asset managers to follow when engaging with investee companies.
ICGN’s own Global Stewardship Principles published earlier this year set out ICGN’s view of best practices in relation to investor stewardship obligations, policies and processes.
Malaysia launched its code for Institutional Investors in 2014, the second code in emerging markets after South Africa, while Hong Kong and Taiwan launched their codes earlier this year.
A report by stewardship and advisory service, Hermes EOS noted that due to a lack of commitment by local funds in Malaysia to the code, uptake and implementation had been poor. However, since the launch of the Institutional Investor Council (IIC), which was aimed at promoting the code and its implementation as well as overall corporate governance, some momentum had been generated – with at least one of the major local funds committed to formally signing up to the code.
In the report, Hans-Christoph Hirt, co-head of Hermes EOS, said: “The proliferation of stewardship codes is positive, as they increase awareness of the role of institutional investors in the governance of the companies in which they invest.”