Investor stewardship – the responsible allocation of capital and purposeful engagement – remains crucial for sustainable investment practices. Becoming effective stewards of capital is complex and dynamic, influenced by evolving regulations, global challenges, and innovative strategies. A key focus is the UK Stewardship Code’s role and impact, setting a benchmark for global stewardship practices.

The Evolving Landscape of Investor Stewardship

Investor stewardship has undergone significant transformations globally. With over 40 stewardship codes across various jurisdictions, it is a cornerstone for both active and passive investment strategies. In 2024, we anticipate further evolution as stewardship principles are increasingly integrated into diverse asset classes, including fixed income and real estate.

Significant Updates to the UK Stewardship Code

The UK Stewardship Code 2020, has played a pivotal role in shaping investor stewardship globally. Recently, the Financial Reporting Council (FRC) announced significant updates to the Code to reduce reporting burdens and enhance the effectiveness of practices.

Key Updates to the UK Stewardship Code:

• Purpose – The FRC will consider all stakeholder views and set out its expectation of what defines effective stewardship, what this looks like in practice, and how reporting against the Code can help to deliver this.
  
• Principles – The FRC is considering what reporting will be necessary to deliver on a renewed purpose of the Code.
  
• Proxy Advisors – The FRC will carefully consider how the Code might support greater transparency of their activities.
  
• Process – The FRC will take forward proposals to reduce the reporting burden currently associated with being a Code signatory and ensure that information included in reports is useful and accessible to all underlying investors and other stakeholders.
  
• Positioning – The FRC is working closely with other regulators such as the DWP, TPR and the FCA to support clarity in understanding the revised Code and its successful implementation. The Code will continue to support the objectives of those other regulators to avoid any confusion and duplication that signatories may encounter.

Impact of the Updates:

These updates are designed to encourage broader adoption and more effective stewardship practices. The FRC’s commitment to reducing the reporting burden will make it easier for asset managers and owners to comply while maintaining high standards of transparency and accountability.

• Reduced Reporting Requirements: Eliminating the need for annual disclosures of certain ‘Context’ and ‘Activity’ reports.
  
• Flexibility in Reporting: Allowing the reuse of content from previous reports and cross-referencing.
  
• Clear Outcome Expectations: Providing clarity on what constitutes an ‘outcome’ for stewardship purposes.

Addressing Systemic Risks:

Systemic stewardship builds upon traditional notions of stewardship by emphasising the responsibility of investors to safeguard and enhance not only the financial value of their assets, but also the underlying social and environmental systems that support wealth creation. This approach involves promoting sustainable practices that contribute to long-term financial performance while also addressing system-level issues.  

This broader approach recognises the need for systemic solutions to systemic challenges and emphasises the role of investors in influencing policy to address issues like climate change. Typical stewardship activities, including company engagement and proxy voting, can be complemented by systemic stewardship, which extends to public policy advocacy. 

The past few years have highlighted numerous systemic risks, including climate change, geopolitical tensions, and social inequalities. These challenges necessitate a robust risk management framework that can adapt to unpredictable and complex environments. Investors must develop flexible, locally-conscious policies and codes to effectively manage these risks and contribute to a sustainable global economy.

The Role of Technology and Data

In 2024, technology and data-driven decision-making will play a crucial role in enhancing stewardship practices. At Maanch, we leverage AI-driven solutions to provide asset managers and investors with the tools to make informed, impactful decisions. Our Maanch Engagement Tracker (ET) is designed to enhance transparency, accountability, and sustainability, aligning investment practices with long-term value creation.

As we look ahead, the future of investor stewardship lies in its ability to adapt and innovate. Key trends to watch in 2024 include:

• Enhanced Regulatory Frameworks: Continued development of codes and regulatory initiatives worldwide.
  
• Integration of ESG Factors: Deeper integration of environmental, social, and governance (ESG) considerations into investment strategies.
  
• Collaborative Engagement: Increased collaboration among investors, companies, and policymakers to address global challenges.

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