The original UK Stewardship Code was published in 2010 by the Financial Reporting Council (FRC), in the wake of the global financial crisis. Its purpose was to hold to account companies and organisations that manage the long-term savings and pensions of the UK public so that they served the best interests of society as whole.
In 2020 the Code was updated to reflect the growing emphasis on environmental, social and governance (ESG) issues. The definition of stewardship was redefined as “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.”
Subsequently, the FRC imposed tougher reporting requirements on companies applying for membership, in a move that the regulatory body described as “a substantial shift away from boilerplate policy statements, towards a focus on activities (what investors did) and outcomes (what was the result).”
Under the previous Code, applicants had to write a policy statement about their stewardship. But to be accepted by the new Code, applicants were required to provide detailed evidence of how they were delivering against the FRC’s 12 principles of stewardship. These include showing how the company “systemically integrates stewardship and investment, including material environmental, social and governance issues, and climate change.” Assessment was based on a Stewardship Report that was “fair, balanced and understandable” and that acknowledged “setbacks experienced and lessons learned, as well as successes.”
Our 2020 Stewardship Report fulfilled the FRC’s criteria and in September this year we were approved as signatories to the Code. Renewal is not automatic – successful applicants have to reapply every year.
As an organisation we welcomed the new Code – we have always believed that good governance and stewardship are essential, and that companies that follow it are more likely to deliver sustainable returns in the long term. Commenting on our entry to the new Code, Mike Everett, our Head of Stewardship, ESG Investment, said: “We recognise the UK Stewardship Code 2020 as a significant further raising of the standards. Creating an annual report to demonstrate our achievement of the principles has challenged us to deliver more transparent disclosure which we believe will benefit our clients and wider stakeholders who seek to assess our stewardship activities.”
Stewardship in action
To support our application, our 2020 Stewardship Report included case studies, one of which focused on our engagement with the fast fashion company BooHoo. In July 2020 The Times exposed evidence of illegal and abusive business practices by the retailer. We had held shares in the company on behalf of clients since the first share issue in 2014 and had already engaged with BooHoo’s management over a number of issues.
The press coverage highlighted our increasing concerns with the company’s failure to meet milestones. As a result, we reassessed our position through our investment governance framework, swiftly escalating it to our Board where the decision was taken to dispose of BooHoo from our actively managed funds.
To read our 2020 Stewardship Report, go to www.abrdn.com