Calls for stewardship code to engage members as well as managers

It was announced in June that the Pensions Regulator would review the FRC’s code, which came into effect in 2010 and was revised in 2020, in collaboration with other regulators and watchdogs. The code currently has around 200 signatories.

The code, which is voluntary, establishes stewardship principles that asset owners, managers and service providers are encouraged to adapt, with principles covering corporate purpose, governance, strategy and conflicts of interest, among others.

The revisions were made to differentiate “excellence in stewardship” and to promote transparency, and the review is scheduled for 2023, by which point there will have been two years' worth of reporting to evaluate.

The review will look at “whether the code is creating a market for effective stewardship and the need for any further regulation in this area”, according to a government response to a consultation on strengthening audit, reporting and governance published on May 31.

The FRC itself is set to be replaced by a “stronger” and “tougher” regulator after criticism of its audit quality and perceived regulatory failings.

Tumelo, founded to empower investors and enable them to engage better with companies and managers, argued that the stewardship code needs to do more to engage with members, after analysis of pension scheme signatories showed very few are doing so effectively.

Signatories must file an annual stewardship report to the FRC explaining how they applied the code across the previous 12 months, and are encouraged to “take account” of member and beneficiary needs.

Tumelo said more must be done to ensure this happens, as analysis of 38 asset owners — the majority of which are pension schemes — revealed few are engaged in dialogue with members on issues such as energy policy and regulatory pay.

Tumelo chief executive officer Georgia Stewart said: “We are in a better place with the code than we would be without it — and now we’re urging the FRC to go further. As an industry we must do more to hear from members on scheme policy, direction, and decisions, and the FRC is in a unique position to help via the code.

“It isn’t only about asking members what they think, but playing back to them what trustees and asset managers are doing on their behalf and explaining how their views are affecting decisions. It’s about creating a sense of inclusion, engagement and influence.”

She added that, though one scheme had invited members to share their views on sustainable investing, this was an outlier, with others “doing very little”.

“In some cases, we could find no evidence of reporting to or engagement with member beneficiaries, while in others there was, at best, a ‘transmit only’ mindset, with little effort to engage in a dialogue with members, gather feedback or measure outcomes,” she explained.

She urged financial regulators to not take stewardship for granted, adding: “This requires policymaker involvement too. 

“The FCA and [Department for Work and Pensions], for example, must not assume that all is well because a stewardship code exists and because it has signatures on it. We need to go further, and ratifying member engagement via policy shouldn’t be off the cards.”