FCA and FRC launch consultations
05 Feb 2019
Responsible investment remains in the regulatory spotlight as January 2019 saw two consultations published, both aimed at improving stewardship practices. The FCA issued a consultation paper on the implementation in the UK of the EU Revised Shareholder Rights Directive. The FRC also published a revision to the UK Stewardship Code and launched a consultation on these changes.
The FCA’s proposals seek to improve shareholder engagement amongst pension funds and other asset owners. This is part through increased transparency of shareholder engagement processes which is expected to drive higher standards of service and support market efficiency. The proposed transparency requirements extend to public disclosure of investment strategies by asset owners, specifically the monitoring of the asset manager’s actions, to ensure they align with the duration of fund liabilities, their performance and pay, and portfolio costs. The proposals also include a reciprocal requirement for disclosure by asset managers to asset owners on how their assets are being managed.
The proposed changes to the Stewardship Code seek to evolve the definition of stewardship to “the responsible allocation and management of capital across the institutional investment community, to create sustainable value for beneficiaries, the economy and society” and extend the scope of the Code to directly reference Environmental, Social and Governance (ESG) matters, including climate change. The requirement that signatories take into account ESG factors in fulfilment of effective stewardship parallels the recent changes to the Investment Regulations for occupational pension schemes.
The revised Code seeks to raise standards for asset owners and managers, extending to establishing clear stewardship objectives, integration of stewardship in investment strategies, and adhering to clearer and more elaborate reporting requirements. For the first time, the role of service providers such as investment consultants is directly acknowledged and the proposals set out separate principles for service providers, recognising the influence they have.
The FCA consultation runs to 27 March 2019 and the FRC consultation to 29 March 2019.