EIRIS Foundation CEO, Peter Webster, expands on our response to the recent consultation regarding proposed changes to the UK Stewardship Code
I was pleased to have been able to join one of the Financial Reporting Council’s roundtables and to hear the range of views on their proposed revision to the UK Stewardship Code.
Our subsequent submission landed very close to UKSIF’s proposal that the definition of Stewardship (which they proposed should focus on long term sustainable value for clients and beneficiaries) should retain its anchor in the real world by adding “having due regard to impacts and dependencies on the economy, the environment and society”. Good to see that PRI landed somewhere similar as well.
We also suggested a more upbeat statement that “Stewardship that supports sustainable long term returns for beneficiaries depends upon and can contribute to the sustainability of the economy, the environment and society” rather than the proposal only that Stewardship “may” have such benefits. When Stewardship is focusing on wider impacts and dependencies we argued that real world impact should remain the measure of success. To look busy in these area without focusing on impact looks too much like greenwashing.
On the rest of the consultation, we commented on collaborative engagement and escalation; the different roles of asset owners and asset managers and how to strengthen the proposals around service provider governance and engagement and disclosure of their expertise.
We understand the idea of integrating the disclosures around collaborative engagement and escalation (when your engagement is getting nowhere) across the whole Code rather than having separate principles and reporting of each. But we didn’t think there were sufficient prompts to do so, principle by principle, and it remains important for signatories to be clear about their policies in both areas, rather than just giving examples.
We also didn’t think the present draft was clear enough how asset owners should distinguish the cases where they do their own voting and engagement from the ones where they depend upon their asset mangers to do it for them. In the second case, their Stewardship (and reporting) might more helpfully focus on how they have explained their expectations and sought to understand and hold managers to account.
And finally, on service providers we thought it was important to explicitly include ESG data providers alongside proxy advisers because ESG data can be important in on-going Stewardship engagement even if proxy advisers play the main role when it comes to voting. In both cases we argued for disclosure of who makes decisions about criteria and service provision (and the expertise they are drawing upon) and for greater client involvement especially in the current climate of cut backs and role backs (for example around board diversity in the US).
Overall we were pleased to see that the principle on market-wide and systemic risks remains a key element of the Code and agreed with the definition of “sustainable value” as meeting the objectives of clients and beneficiaries today without compromising the ability to do so in future.
We shall look forward to seeing what emerges from the consultation process!
Read EIRIS Foundation’s full consultation response regarding the UK Stewardship Code review