The revised UK Stewardship Code’s effect on teams and resourcingThe UK Stewardship Code and market pressure have led to a growth in stewardship teams and resourcing among investors and asset managers.
Three years ago, the UK's Financial Reporting Council (FRC) announced planned revisions of its Stewardship Code designed to strengthen reporting requirements and stewardship expectations for asset managers.
Now, a new report issued by the FRC sheds light on the impact of those revisions on the practice and reporting of asset managers and owners. In general, the response about the updated Code is positive.
Under the regulator's rules, all UK-authorised asset managers are required to commit to the existing Stewardship Code or explain why it would not be appropriate for their business to do so. The new Code took effect at the start of 2020, and additional guidance on the Code was issued in the second half of that year.
Stewardship, according to the report's glossary, is "the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment, and society".
The research shows strong evidence of material changes to practice in the areas of governance, stewardship activities, outcomes, reporting, and, especially, resourcing.
All entities in the sample had undertaken some organisational restructuring to better integrate stewardship within their investment decision-making, a new requirement of the Code, according to an FRC news release.
Regarding resourcing, most asset managers and asset owners recorded increases in the resourcing of stewardship, typically identifying overall research budget increases, the growth of stewardship teams, and the use of external experts.
The survey showed that 63% of asset managers predicted that staff resourcing would increase slightly over the next one to two years, and an additional 29% predicted significant increases.
While some respondents said they have well-resourced teams, others suggested that resourcing remains a significant challenge.
"The growth of stewardship teams and resourcing appears to be driven by a combination of market pressure for more responsible investment combined with an increased emphasis on stewardship, with the Code being a significant factor in the growth," the FRC report said.
The report also found:
- 96% of respondents reported increases in the size of their stewardship teams since the introduction of the revised Code and noted opportunities for more formal career progression in stewardship.
- 77% said the quality of engagement was better because of the Code's influence.
- 53% of asset manager respondents reported a slight increase in stewardship staff resources, and 43% said resources had increased significantly over the past one to two years.
The data came from a survey of asset managers and interviews with 55 asset managers and asset owners conducted between May and September 2021.
— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.