UK Stewardship Code 2020 raises the bar, including with ESG requirements

This week, the Financial Reporting Council (FRC) published the first list of successful signatories of the revamped 2020 UK Stewardship Code (the Code). While we note that the number of successful signatories have fallen this year, it is also very interesting that, at a time when ESG focus and credibility is of increasing importance, the number of total applicants dropped substantially since 2019. Institutional investors and asset owners are encouraged to apply to become a signatory to the Code at the next application window.



The current version of the UK Stewardship Code has applied since 1 January 2020. The FRC’s deadline for the first assessment of signatory applicants under the 2020 Code (for the period 1 January to 31 December 2020) was 31 March 2021 for asset managers, and 30 April 2021 for asset owners. 

 The Code sets good stewardship practice for those investing money on behalf of UK savers and pensioners, and those that support them. Among other things, the Code was updated and replaced for 2020 to extend its scope of application and recognise that environmental, social and governance (ESG) matters have become material issues for investors to consider when making investment decisions and undertaking stewardship. For example, the Code requires signatories to evidence their stewardship activities and show how they integrate ESG factors into investment decisions.

The FRC is responsible for the oversight of the Code.

Who does the Code apply to?

The Code applies to:

  • asset owners such as pension schemes, insurers, foundations, endowments, local government pension pools and sovereign wealth funds;
  • asset managers who manage assets on behalf of UK clients or invest in UK assets; and
  • service providers such as investment consultants, proxy advisors, and data and research providers that support asset owners and asset managers to exercise their stewardship responsibilities.

The 2020 Code’s signatories

On 6 September 2021, the FRC published the names of the 2020 Code's signatories. The FRC reports that it received 189 applications from 147 asset managers, 28 asset owners, including pension funds and insurers, and 14 service providers, including data and information providers, and investment consultants. Only 125 of those applicants passed the FRC’s "rigorous review process". The previous version of the Code had around 300 signatories.

The deadline for applications to become signatories to the Code was 31 March 2021. The new Code is more detailed and wider in scope that its previous version. As such, perhaps it is unsurprising in the year of a pandemic that applications have dropped. However, the challenges that asset managers (and other firms) have also faced in respect of integrating and measuring ESG issues – not least insufficient data and standardisation – cannot have helped applicants meet their new reporting obligations under the Code. It is to be hoped that, as these issues are resolved, the FRC will see an increase in successful applications going forward.

 For those successful applicants, the FRC said it was pleased to see investors better integrating stewardship and ESG factors into their investment decision-making, reporting on asset classes other than listed equity and identifying the outcomes of their efforts. There was also some strong reporting on underpinning governance activities.

Lessons for future FRC applicants

The FRC commented that the organisations that did not make the list of signatories commonly did not address all the principles applicable to them or sufficiently evidence their approach, instead relying too heavily on policy statements. Other areas of weakness the FRC identified were reporting on the approaches to review and assurance, monitoring service providers and a lack of focus on identifying areas for improvement.

What about FCA expectations?

The FCA Handbook already includes provision that investment firms and firms distributing insurance must disclose clearly on its website (or if it does not have a website in another accessible form) the nature of its commitment to the Code or, where they do not commit to the Code, their alternative investment strategy.

Notably, more recently in its 2021-22 business plan, the FCA states that it "will monitor the exercise of investor stewardship by institutional investors, including voting at Annual General Meetings. If there is insufficient evidence of active stewardship to advance environmental and social goals, we will consider further regulatory action".

Therefore, regardless of firms being a signatory of the Code, stewardship expectations are not a box-ticking exercise. Asset managers and regulated asset owners clearly need to be seen to be taking active steps, including to embrace ESG considerations, in their stewardship role.

Next steps

Unsuccessful applicants have been given feedback from the FRC and this should be their first port of call to improve their approach to stewardship and meeting the requirements of the Code. In addition, the FRC encourages unsuccessful applicants to consider its upcoming annual review of reporting to be published in November 2021. Unsuccessful applicants can reapply in future application windows. The next application deadlines are 31 October 2021 and 30 April 2022.

Even those firms who have been successful in their applications must be alert. Market practice and expectations continue to evolve and the FRC equally expects organisations to continue to improve their reporting accordingly.

At Hogan Lovells, we can advise you and your organisation on the integration of ESG across your business and on expanding stewardship obligations and expectations. To discuss these issues please get in touch with one of the contacts listed above.


Authored by Rachel Kent, Nicola Evans and Yvonne Clapham

Rachel Kent
Nicola Evans


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