UK’s FRC adds new signatories to Stewardship Code, switches focus to outcomes

New signatories include NatWest and HSBC UK pension schemes, BNP Paribas AM, Allianz Global Investors and Northern Trust.

The UK’s Financial Reporting Council (FRC) has said it will give greater weight to outcomes when assessing stewardship reports, as it announced 43 new signatories to its Stewardship Code.

The code’s 236 signatories now represent £40.7 trillion (€47.4 trillion; $46.9 trillion) of assets, with the latest round of applicants adding just over £7 trillion to the total.

The Stewardship Code seeks to establish “high stewardship standards for those investing money on behalf of UK savers and pensioners, and those that support them”, and was strengthened as part of an overhaul in 2019. Asset owners, managers and service providers can apply to become signatories in order to demonstrate their commitment to issues such as good governance, voting and engagement. The FRC assesses the quality of the reports and decides whether to accept the applicant as a signatory.

The regulator said it would give greater weight to actions and outcomes when assessing reports in future, whereas previously it had focused more on policies. It said there “still needs to be a greater emphasis” on outcomes in signatories’ reports.

Achieving signatory status can be challenging. One-third of applicants failed to make the grade in this round, a greater proportion than the quarter that were rejected in the last round in March. One-third of applicants were also unsuccessful in September 2021, although the total number of applicants at that time was three times the number in the latest round.

The new intake contains some applicants that had previously been turned down. A spokesperson for the FRC said it was “encouraging” that many had reapplied and taken feedback into account, but added that it was “slightly disappointing” that some newer applicants had failed to use available resources and been rejected.

Among the new asset owner signatories are the pension funds for NatWest and HSBC UK, the Royal Mail Pension Scheme, and several local government pension schemes, including the £9.8 billion Northern Ireland scheme. New managers on the list include BNP Paribas Asset Management, Northern Trust Asset Management and Allianz Global Investors.

Allianz said last year that it planned to get a better idea of best practice before applying. Matt Christensen, global head of sustainable and impact investing, said this week: “Being a signatory to the code is a public expression of our continuous commitment to embedding responsible investment across our business and to conforming to the very highest stewardship standards.”

Rachel Crossley, head of stewardship for Europe at BNP Paribas AM, said this year was the first time the manager had applied and it was “pleased” to have met the FRC’s standards. BNP Paribas AM said in September last year that it had decided not to apply due to its commitment to global and European stewardship codes.

A spokesperson for Northern Trust said the firm was “delighted” to have been awarded signatory status but did not comment on why it had not signed up previously.

Asset owners in the UK are increasingly putting pressure on their managers to sign up to the code and to improve stewardship practices. The £190 billion pensions giant Scottish Widows told its managers to sign up by 2024 or risk losing its business. It also requires new managers to be members.

When the FRC surveyed asset managers on the impacts of the revised stewardship code on their own practices, every single respondent said that client expectations were a key driver in signing up to the code. One UK manager noted that every request for proposals it had received in the last year had asked about the code.