Revised UK Stewardship Code Published by FRC

On June 3, the FRC published the revised UK 2026 Stewardship Code (“the Code”), after extensive stakeholder consultation on the existing (2020) Code.

The new Code is intended to be less prescriptive and more flexible. By streamlining reporting requirements for signatories to the Code, whilst increasing transparency, the aim is to improve the quality of reporting on stewardship, and to enhance engagement, rather than a pure demonstration of “tick-box” compliance.

By reducing some of the existing reporting burdens on investors, it is hoped this will make way for more constructive engagement and dialogue between investors and investee companies, as well as setting out a more robust and transparent framework for proxy advisors (and other service providers).

The 2026 Code will take effect on 1 January 2026, with 2025 as a transition year. This allows nearly 300 existing signatories (including most major UK, and many global asset managers, proxy agencies, and investment services) time to familiarise and adapt to the streamlined reporting approach.

The Code remains voluntary and operates on an “apply or explain” basis. The 12 Principles stated in the 2020 Code (which signatories currently use to report on their stewardship activities and company engagements) have been reduced, refined and segmented.

For the first time, proxy advisors and other investment/engagement service providers are required to report more transparently against separate dedicated Principles. This change addresses companies’ long-standing concerns about inconsistent voting methods across regions, which the UK Stock Exchange claims disadvantages London.

The 2020 Code itself was widely adopted, and reporting over the last 4 years has allowed time to assess its shortcomings and how it could be improved, reducing the burden of reporting significantly (by up to potentially 30% for asset owners and managers), freeing up resources which it hopes can lead to better and more meaningful dialogue with investees.

Key Changes for the 2026 Code are as follows:

• An updated definition of “Stewardship” to better reflect the primacy of value creation for clients and beneficiaries. The reference to ESG is removed from within the definition itself (although the supporting commentary still refers to having regard to the economy, the environment and society, upon which beneficiaries’ interests depend).
• Streamlined reporting, to reduce a “box ticking” approach, featuring fewer Principles and shorter “how to report” prompts.
• Flexibility in reporting structure, to best reflect an organisation’s approach to stewardship activities – with a choice of submitting separate “Policy and Context (P&C) Disclosures”, and “Activities and Outcomes (A&O) Reports” or combining the two in a single report. The reports must be reviewed and approved by the Governing Body (i.e. Board or Trustees) and must be signed by the Chair, Chief Executive Officer or Chief Investment Officer.
  • The P&C disclosure describes stewardship policies, governance structures and other contextual (“static”) information, which will only need to be submitted and published once every four years, (unless there is a change in policy or governance in the intervening time which would necessitate an update);
  • The A&O report, which covers how the organisation has applied the Code, and how the Principles apply to the stewardship activities, is to be submitted and published annually.
• New targeted, dedicated Principles for different classes of signatories, which for the first time separately addresses proxy advisors, investment consultants and engagement service providers.
• Separate guidance, which is optional (and can be easily updated), but contains useful hints, tips and examples, to support tailoring of disclosures and help signatories adopt best practice in reporting.

In applying the Principles, signatories should still consider (amongst other issues) the effective application of the UK Corporate Governance Code (or other applicable code), diversity, remuneration and workforce interests, as well as ESG.

Farient Commentary

We welcome the reduction in the reporting burden for asset owners and asset managers, on the basis that anything that creates more time for constructive dialogue and engagement with companies is a good thing. This is particularly pertinent in an environment where there is a push to improve the UK’s competitive landscape, where there may be occasions that re-alignment of remuneration packages is necessary to ensure that the right talent is in place. This requires being able to get the right bandwidth with investors, which historically has not always been easy.

We also welcome the new Principles that are specifically targeted at proxy advisors. Clients regularly report to us that a major drawback under the government’s growth agenda is the role that proxy advisors play in their engagement with companies, and their influence on asset managers’ voting decisions.

Lack of constructive engagement and clear expression of a point of view is often cited as a frustration, particularly where a UK company has a strong global footprint, as well as a lack of transparency over the disparity of methodology in reaching recommendations between the US and UK geographies.

This perceived inequity, whereby proxy advisors are viewed as being supportive of larger pay packages for US listed companies and more negatively disposed towards large or atypical packages for UK executives, has led to UK companies feeling at a disadvantage and is often cited as a reason (for potential IPO candidates) not to list in London.

Signatories  who use proxy advisors will need to explain how they use them and how they monitor the quality and accuracy of advice. In addition, new Principles that specifically apply to proxy advisors (and Investment Consultants) mean that they will now have to report how they have implemented their client’s policies, how they have developed their own benchmark or standardised policies, and how they make resulting recommendations. They will need to publish their methodologies and approach to engagement, explaining how they have ensured the quality and accuracy of their research and recommendations and how they have responded to any requests for engagement.

Proxy advisors have an important role to play in the investment chain but in our view, increased transparency that supports a more robust framework, improves the quality of the engagement process and enhances a shared understanding of recommendations is a positive move.

The changes announced in the revised Code move the dial in the right direction, but the transition year will provide an opportunity to test if they go far enough. The journey to close the UK/US pay gap continues, and this may provide a timely opportunity for the FRC to also consider if the UK Corporate Governance Code could itself go further.