New Stewardship Code to require ESG declarations

The updated UK Stewardship Code will require pension schemes to declare whether they have taken environmental, social and governance (ESG) factors into account when investing member funds.

The Financial Reporting Council’s (FRC) revised code will come in effect from 1 January 2020 and will also require schemes to disclose their voting records, and how they have protected and enhanced the value of their investments.

It hopes that the guidelines will lead to greater transparency and ensure that investment decisions are “aligned with the needs of their clients”.

Schemes will be expected to take ESG issues, such as climate change, into account when making investment decisions.

Business Secretary, Andrea Leadsom, said that the government was “committed” to ensuring that that UK is “the best place in the world to work and grow a business”.

“This code is an important piece of work by the FRC under its new leadership. It recognises the essential role of effective stewardship in supporting stronger corporate governance, diversity and social environmental priorities. I urge asset managers and owners to lead by example and sign up," she added.

Investment Association director for stewardship and corporate governance, Andrew Ninian, said that the organisation was “looking forward” to working with the FRC to promote the new code and “ensure its effective implementation”.

He continued: “The most significant change will come from the new reporting requirements, enabling investment managers to demonstrate the tangible change their engagement with companies can bring and allowing savers and investors to judge the outcomes they deliver on their behalf.”

PLSA policy lead: investment & stewardship, Caroline Escott, commented: “It is absolutely right that the code is aligned to regulations elsewhere in explicitly referring to ESG factors – including climate change.

“We also support the shift in the code to more explicitly cover asset classes beyond equity and its applicability to service providers, which play a key role in supporting schemes to make sound investment decisions."

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