The Institute's Response to the UK Stewardship Code Consultation

Auhor: Valentina Dotto is Policy Advisor at CGIUKI

The Financial Reporting Council (FRC) has finished consulting on its proposed changes to the Code.  The UK Stewardship Code sets a standard for how investors manage their responsibilities and aims to ensure that investment decisions drive long-term value and create positive societal outcomes. The Institute has submitted its response to the consultation.

While we appreciate the hard work and collaboration that went into these proposed updates, we’re concerned that the changes may not go far enough—or in some cases, they might even take us backwards. So, what’s the issue? In short, we think the updated Code risks watering down what stewardship should really mean, and we’re not convinced it’s tough enough to drive meaningful change.

The definition of stewardship

One of our biggest concerns is the revised definition of stewardship. The new version focuses narrowly on creating long-term value for clients and beneficiaries. That might sound fine on the surface, but here’s the problem: it strips away the bigger picture.

Stewardship isn’t just about making money for investors. It’s also about making sure companies are managed responsibly, both for their shareholders and for society. UK corporate law has long recognised this dual responsibility, and it’s critical for a healthy economy.

If the definition becomes too narrow, there’s a real danger that investors will opt out of engaging with companies altogether. Instead of stepping in when things go wrong, they might just pull their money and walk away. That’s not what stewardship is supposed to be.

We suggested that the FRC revisits this definition to make clearer that stewardship is about creating value and ensuring companies are a positive force in the world.

Enforcement: Where are the Teeth?

Here’s another sticking point. Right now, the Stewardship Code relies on voluntary compliance. That’s great for organisations that want to do the right thing—but what about those that don’t?

Unlike the UK Corporate Governance Code, there’s no “comply or explain” requirement for investors. This means the Code lacks the muscle to tackle poor practices.

We think that ARGA or the FCA needs to step in and make compliance with the Code mandatory for regulated investors. And why stop there? Companies should be able to refer investors who aren’t pulling their weight for potential regulatory action. That would create a level playing field and ensure everyone takes stewardship seriously.

Reporting: Don’t Cut Corners

We understand that reporting can be time-consuming, and it’s tempting to reduce the burden on signatories. But lowering reporting standards too much, creates the risk of losing what makes the Code effective: transparency and accountability.

High-quality reporting helps companies, clients, and the wider market understand how investors are driving change. While some streamlining is fine, we need to ensure that the information shared is still sufficiently detailed to be meaningful.

To sum up, these are the suggestions we shared with the FRC to strengthen the Code.

1. Clarify Policy Changes. Signatories need better guidance on what counts as a significant policy amendment. This will help ensure consistency and transparency.
2. Fix Reporting Prompts. Some of the proposed reporting prompts are a bit vague. For example, the diversity and inclusion section need clearer expectations, and the conflicts of interest prompts could use more direction. Testing these prompts with stakeholders would help refine them.
3. Hold Proxy Advisers Accountable. Proxy advisers play a huge role in the stewardship process, and they should be transparent about how they engage with issuers and handle any inaccuracies in their recommendations.
4. Strengthen Engagement Principles. Engagement is at the heart of stewardship. The updated Code merges several principles into one, which could weaken the focus on key areas like escalation. We think these principles need to stay distinct.
5. Keep Reporting Rigorous. Reporting on engagement activities should remain detailed and consistent. This is vital for holding signatories accountable and showing the impact of their work.

The UK Stewardship Code has always set a standard, but these changes need to raise the bar, not lower it. We’re calling on the FRC to address these concerns and make stewardship a force for real, lasting change.

However, it’s not all bad news—we do think some of the proposed changes are steps in the right direction. For instance, the distinction between principles for direct investors and those investing through third parties is a helpful clarification. Allowing signatories to link to external information in their reports also adds flexibility, as long as reports remain clear and comprehensive.

We’ll be keeping a close eye on how the final Code takes shape—and we’ll continue to push for a strong, effective framework that works for investors, companies, and society.