IBE response to FRC Stewardship Code consultation

Consultation response
01 April 2019

Tags: Corporate governance

Read IBE's response to the FRC consultation on proposed revision to the Stewardship Code.

Governance and the investment process, supported by a strong and effective approach to stewardship, have an important role to play, in ethical business practice,  especially when stewardship favours a long term approach to business success as opposed to focus on short term results.

Institutional investors are there to look after the assets of their beneficiaries. As such, the IBE broadly supports the primary definition of stewardship in the revised code and we agree with the references to environmental and social issues. However, the insertion of a social purpose is not appropriate in the context of the Stewardship Code, especially since it might lead to conflicting objectives.

The IBE is concerned that the revised Code places too much relative emphasis on environmental and social engagement at the expense of engagement focused on the financial, commercial and strategic health of the business, and continues to place heavy emphasis on reporting. 

In our response, we underline the need for more clarity on what the stewardship obligations of investors actually are and what they understand by them. The code would be strengthened by specific reference to the need for signatories to develop and disclose a clear understanding of their fiduciary duties.

The objective of the Stewardship Code should be improved execution by institutional investors of their fiduciary duties. High quality reporting is a necessary - but not sufficient -  pre-requisite for this. Together with the government and other regulators, investors should look at incentives towards better quality engagement.