FRC plan to drop ‘environment and society’ from stewardship code

The Financial Reporting Council is looking to remove the mention of “the environment and society” from its definition of good stewardship for institutional investors.
Currently, the accounting watchdog describes stewardship as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society”.
However, a number of signatories to its UK stewardship code raised concerns that the wording implied that making money for clients must always deliver additional wider benefits. The council accepts that, while some investors may well value making money and benefiting society equally, “it is for each signatory to determine their specific investment objectives”.
As a result of the feedback, the watchdog is looking to update its definition of stewardship to “the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries”.
“The updated definition reinforces that the purpose of stewardship is delivering long-term sustainable value for beneficiaries, while acknowledging the potential for positive environmental and social outcomes,” Richard Moriarty, chief executive of the FRC, said.
“It’s about providing clarity and flexibility for signatories to determine the factors that support their investment objectives and show how their stewardship supports that. We are asking stakeholders whether this will better support growth and investment.”
The UK stewardship code sets standards for asset managers, insurance and pension funds to explain to savers and pensioners what they are doing with their money and to prevent unethical decision-making.
The voluntary code has 287 signatories, which between them have £50 trillion of assets under management. Legal & General, JP Morgan, Goldman Sachs and Abrdn are among those to have signed up.
The amendment is part of a number of “significant updates” to the code that are to be consulted on over the coming weeks. The regulator said it was proposing the updates to “streamline reporting requirements [and] reduce burdens for signatories”, which it hopes will help to support economic growth.
There has been discontent among some in the City, who have suggested that the code has added to their regulatory burden and made them less inclined to invest in UK businesses.