New U.K. Stewardship Code outlines best ways fiduciaries can integrate ESG
The guiding document outlining best practices for fiduciaries practicing corporate engagement is in for a major update.
As of January 2020, the U.K. Stewardship Code will include new expectations on how those investing on behalf of savers and pensioners integrate the activities of investment and stewardship, including on environmental, social and governance issues.
The code, as published by the Financial Reporting Council, defines stewardship as the responsible allocation, management and oversight of capital for the purpose of creating long-term value for beneficiaries, leading to sustainable benefits for the economy, the environment and society.
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The update comes off the back of a consultation with dozens of stakeholders, including many prominent multinational asset management firms.
“Signatories should disclose the issues they have prioritized for assessing investments, prior to holding, monitoring through holding and exiting,” the revised code said. “This should include the ESG issues of importance to them.”
In practice, the code’s signatories should explain how this process of integration differs depending on a given fund, asset class or geography in which they’re investing. They should also delineate how they’ve ensured “tenders have included a requirement to integrate stewardship and investment, including material ESG issues; and the design and award of mandates include requirements to integrate stewardship and investment to align with the investment time horizons of clients and beneficiaries.”
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As an alternative, signatories could also explain the process they’ve used to align the integration of stewardship efforts with the investment time horizons of their beneficiaries. As well, they should state how they’ve ensured that service providers receive clear and actionable criteria in support of the stewardship and investment, including material ESG issues.
Further, investors should be able to explain how those efforts have informed decisions around acquisitions, monitoring assets and exiting positions and how those choices have best served beneficiaries.