Interim Changes to Reporting for Stewardship Code Signatories

Published: 30 August 2024

8 minute read

The FRC is undertaking a fundamental review of the Stewardship Code 2020. Following extensive engagement with stakeholders, and in response to their feedback, the FRC is taking steps to reduce the reporting burden on signatories to the Code. These changes are effective for the next application deadline of 31 October 2024.

These measures and clarifications do not reduce the requirement for high quality disclosures but allow for more proportionate reporting. Those who would prefer to report as they currently do are welcome to do so.

The review of the Code is ongoing, with further engagement across summer and early autumn, and a formal consultation later this year.

The following interim reporting measures cover what signatories are required to report, and how they can report this information.

Measure 1:

We will no longer require existing signatories to update disclosures against “Context” reporting expectations, except where there are material changes to previous disclosures.

Context reporting sets out background information and policies relevant to signatories’ stewardship across the Principles of the Code. Existing signatories who are applying to maintain their signatory status will only be required to update disclosures on “Context” reporting expectations where there are material changes to the policy or process stated in their most recent Stewardship Report.

Signatories should still provide reference to Context reporting from previous Stewardship Reports, either by re-using the same material in their new report, or by cross-referencing to their previous report.

This applies to all existing Asset Manager, Asset Owner and Service Provider signatories. Applicants who are not currently signatories will still be expected to report against all expectations of the Code.

Measure 2:

We will no longer require existing Asset Owner and Asset Manager signatories to disclose against “Activity” and “Outcome” reporting expectations for Principles 1, 2, 5 and 6, except where there are material updates.

Activity and Outcome reporting provides evidence of a signatory’s stewardship approach during the 12-month period that their report covers. From October, signatories need only cover new reporting to the Activity and Outcome expectations of Principles 1, 2, 5 and 6 where there is a material update. We have heard from stakeholders that activities relating to these Principles take place over longer time horizons and as such it can be more difficult to report Outcomes on an annual basis.

Removing the requirements on annual Activity and Outcome reporting for those Principles will allow signatories to prioritise updating reporting on the activities and outcomes of their approach as relevant to Principles 3, 4, and 7 – 12.

Measure 3:

Existing signatories may cross-reference to specific disclosures made in their most recent Stewardship Report where there have been no material changes.

To date, Stewardship Reports are submitted as a single document including content covering all relevant reporting expectations. Moving forward, existing signatories may cross-refer to their most recent Stewardship Report which was accepted by the FRC and granted signatory status. Any material updates should be explained within the new report.

All applicants are also encouraged to cross-refer between Principles within their Stewardship Report, where relevant. Stewardship Reports are considered by the FRC as a whole document, and it is not necessary to repeat content across multiple Principles.

Where content is relevant to multiple areas of the Code, reports could note the sections or page numbers of the relevant disclosures.

Clarifications

The following are clarifications of the FRC’s expectation for all applicants and signatories regarding reporting on outcomes and the application of the Principles on collaborative engagement and escalation of stewardship activity.

“Outcome” reporting expectations.

Outcomes of engagements and other stewardship activities may refer to changes made by an issuer as a result of the engagement, as well as how engagement has informed investment decisions (buy, sell, hold). Outcomes can also be demonstrated by positive, constructive and ongoing engagement with issuers to create long-term value for beneficiaries.

We recognise that effective stewardship takes time, and it is not always possible to report on an engagement that has concluded in the reporting period. Applicants can report on an ongoing engagement, along with some reflection on progress made and next steps.

All applicants are reminded that collaborative engagement and escalation should be undertaken “where necessary”.

The Stewardship Code points to both collaborative engagement (Principle 10) and escalation (Principle 11) as useful tools investors may use as part of their stewardship approach. However, these Principles state that collaborative engagement and escalation should be undertaken “where necessary” in recognition of the fact that signatories may not have cause to undertake these each and every year.

Applicants do not need to undertake collaborative engagement or escalation unless it is conducive to achieving their stewardship objectives. All applicants are reminded that a successful application is not dependent on including examples of collaborative engagement and escalation and Stewardship Reports should offer transparency in the approach taken to engage with portfolio companies to maintain or enhance the value of assets.

How to make use of cross-referencing in stewardship reports

In July 2024 the FRC announced changes to reporting against the UK Stewardship Code to help reduce the reporting burden on existing signatories, specifically to:

1. Remove the requirement to annually disclose all ‘Context’ reporting expectations, except for material changes.
2. Remove the requirement to annually disclose against ’Activity‘ and ’Outcome‘ reporting expectations for some Principles.
3. Explicitly allow use of content from previous reporting and cross-referencing to such reports.

Below we set out suggestions on how signatories can make use of cross-referencing.

If you have further queries about using cross-referencing or others related to the interim reporting measures, please email [email protected]. For general FAQs about the Code Review please see below.

Do I have to use cross-referencing?

No. Use of cross-referencing to a previous report is not mandatory. It is a measure intended to reduce the reporting burden for applicants, but the choice to cross-reference to a previous Stewardship report is at the discretion of the applicant.

What external documents can be cross-referenced?

The FRC will accept cross-referencing to an existing signatory's most recent previous Stewardship report only.

What is the purpose of cross-referencing to my previous Stewardship report?

The purpose of cross-referencing is to help reduce the reporting burden for applicants looking to renew their Stewardship Code signatory status. Cross-referencing to previous stewardship reports can be used to provide background and context which appears in the previous report, without an applicant needing to copy or repeat this information.

How to cross-reference:

• Any cross-reference must either include a hyperlink to the relevant section of the report or include an exact page number for ease of access by the reader. Please see below for information on both options.

Hyperlinks:

• Where hyperlinks have been used, the link must work to show the information the applicant has intended for the reader.
• The hyperlink should take the reader directly to the relevant page or paragraph and should not link to the previous stewardship report as a whole.
• It should also be clear what information is being referenced on that page. For example, specifying which case study, or specifying a section underneath a heading.
• Where an applicant has provided a broken or incorrect link, the FRC will endeavour to provide an opportunity during the assessment period for this to be remedied within a specific time frame determined by the FRC.
• Where an applicant is unresponsive to an opportunity to update a broken or incorrect link, the FRC may consider this to be insufficient reporting when assessing the relevant reporting expectation.
• Where standalone links are provided without context, the FRC will consider this to be insufficient reporting when assessing the relevant reporting expectation.

Page numbers:

Where an applicant is cross-referencing using page numbers instead of hyperlinks, an exact page number must be included.

• It should also be clear what information is being referenced on that page. For example, specifying which case study, or specifying a section underneath a heading.

When is it not appropriate to cross-reference information as part of these interim measures?

Applicants should not cross-reference to previous reports for information related to “Activity” and “Outcome” reporting expectations under Principles 3, 4 and 7 to 12.

Applicants should report on activities from their latest reporting period under these Principles to ensure reporting is up to date about how stewardship has been exercised in the previous 12 months, and to maintain the readability and cohesiveness of Stewardship Reports.

Additionally, if there have been material updates under Principles 1,2,5 and 6, we would expect applicants to report on these as well.

FAQs: Interim reporting measures and clarifications for Stewardship Code signatories

Please find below the FAQs on the interim reporting measures.

In this section

Why are you introducing interim reporting measures?

During our initial engagement phase on the Stewardship Code (Code) Review, many stakeholders highlighted that signatory status to the Code is highly valued in the marketplace. However, we repeatedly heard concerns about the resource required for reporting to be a Code signatory.

In response, we are announcing measures to help reduce reporting for signatories ahead of our formal consultation and the release of a new Code. We are also clarifying our expectations for all applicants and signatories regarding reporting outcomes, and the application of the Principles on collaborative engagement and escalation of stewardship activities.

When can existing signatories use the interim reporting measures?

The interim reporting measures may be used by existing signatories for the next application deadline of 31 October 2024, until the formal implementation of a new Code in 2026.

Who can use the interim reporting measures?

These interim reporting measures may only be used by signatories that at the time of submitting their stewardship report are submitting a report to maintain their signatory status (“existing signatories” to the list).

These measures may not be applied by asset managers, asset owners or service providers that are not listed as signatories to the Code. This includes any organisations that have previously been listed as signatories, subsequently removed from the signatory list, and are applying to regain signatory status. These applicants would be required to submit a full report which responds to all Principles and reporting expectations of the Code.

Is using the interim reporting measures mandatory?

The FRC does not require organisations to apply these interim measures. These measures do not change the quality of reporting but provide more proportionate reporting for those who wish to use them. Existing signatories who would prefer to report as they currently do, without use of these interim reporting measures, are welcome to do so. It is for existing signatories to decide whether they wish to use the interim measures.

If I use the interim reporting measures, will I be able to receive feedback on my report?

The FRC will continue to provide comprehensive feedback for all first-time signatories and any unsuccessful applicants. For renewal applications from existing signatories, we may offer proportionate feedback on reports and on how signatories have applied the interim reporting measures, where appropriate.

Will interim reporting measures be made permanent?

The interim reporting measures are aimed at reducing the reporting facing organisations prior to the implementation of a new Code in 2026. The new Code review will be subject to a public consultation. We will provide signatories and applicants with further information on ways they can share their views when the consultation is published.

What changes are deemed “material” to require disclosures against “Context” reporting expectations?

Signatories to the Code are best placed to identify which changes from their previous years’ reporting are substantively different compared to previous disclosures. Examples include, but are not limited to, when signatories:

• may have updated or issued new policies such as conflicts of interest or voting policy that stewardship activities are checked against;
• investments across asset classes or geographies, or client base or beneficiary profile may have changed;
• may have changed their investment approach or taken significant strategic decisions which impact the exercise of their stewardship.

Any changes that signatories deem material should be explained in their new report

Are there risks posed to maintaining signatory status by using these interim measures?

There are no risks to organisations maintaining their signatory status given the interim reporting measures are applied as outlined in the FRC’s communications. If signatories have any concerns or specific queries in relation to implementing the interim reporting measures, they should email [email protected]

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