FRC: UK Stewardship Code Consultation

On 11 November 2024, the Financial Reporting Council (FRC) published a consultation document setting out proposed changes to the 2020 UK Stewardship Code (Code). These changes are aimed at ensuring the Code continues to drive effective stewardship by supporting high-quality disclosures, appropriately reflects developing stewardship practice and maintains its global standing, in a way that does not place onerous reporting burdens on signatories.

Key proposed revisions include the following:

• Defining stewardship as the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries. The FRC states that this mended definition aims to support more transparent conversations between actors in the investment chain about their investment beliefs and objectives, while being sufficiently broad to be applicable to signatories across the investment chain and different asset classes.

• Distinguishing between different types of information and reducing reporting where possible, by requiring reporting in two parts:

• Policy and Context Disclosure: to be a signatory to the updated Code, applicants will be required to submit information about their organisation, its governance and resourcing, linking to relevant policies. This disclosure will be reviewed less frequently by the FRC (after three years) and updated only as necessary by the signatory but must still be submitted annually.

• Activities and Outcomes Report: to be a signatory to the updated Code, and every 12 months thereafter, signatories will be required to submit a report that provides information on how they have exercised stewardship in the preceding year. This would include how they have sought to apply the Principles through the activities they have undertaken and the resulting outcomes.

• Streamlining the Principles with more concise reporting prompts designed to encourage signatories to explain their individual approach to stewardship, supported by guidance that gives additional, non-prescriptive suggestions for some of the information signatories may wish to include, so helping signatories concentrate reporting on the most insightful areas of reporting, while reducing the volume.

• Tailoring the Service Provider Principles to include some that are dedicated to proxy advisors and investment consultants respectively.

• Testing whether the updated Code could better enable signatories to use cross-referencing to disclosures they make to meet other requirements or frameworks to support their reporting against the Code.

In terms of timing, the FRC anticipates publishing the updated Code in the first half of 2025, with an effective date of 1 January 2026. Under this proposed timeline, signatories to the 2020 Code will report as usual in 2025 to maintain signatory status. New applications to become a signatory to the 2020 Code will no longer be accepted following publication of the updated Code, with the list of signatories to the 2020 Code being archived in Q1 2026. The updated Code will become effective in 2026, with the first reports to this updated Code submitted to the FRC in that year.

Attached to the consultation document are the following appendices:

• Appendix A: Full list of consultation questions.
• Appendix B: Proposed updated UK Stewardship Code.
• Appendix C: Mapping of the updated Code and 2020 Code.
• Appendix D: Sample guidance.
• Appendix E: Background to the UK Stewardship Code and other developments

Responses to the consultation document are requested by 19 February 2025.

(FRC, UK Stewardship Code Consultation, 11.11.2024)

(FRC, Stewardship Code Consultation, 11.11.2024)

IFRS Foundation: Progress on Corporate Climate-related Disclosures – 2024 Report

On 12 November 2024, the IFRS Foundation published a report prepared for the Financial Stability Board (FSB) on progress on corporate climate-related disclosures. The report continues the work of the FSB’s Task Force on Climate-related Financial Disclosures (TCFD) to record the progress of companies reporting on its 11 recommended disclosures.

Based on its sample of public companies, in the financial year 2023, the report found as follows:

• 82% of companies disclosed information in line with at least one of the 11 TCFD recommended disclosures and 44% of companies with at least five of the recommended disclosures.
• Approximately 2–3% of companies reported in line with all 11 TCFD recommended disclosures.

• Companies are making the transition from disclosures prepared using the TCFD recommendations to disclosures prepared using the two inaugural Standards issued by the International Sustainability Standards Board (ISSB) in June 2023. Between October 2023 and March 2024, more than 1,000 companies referenced the ISSB in their reports.

• Few companies are disclosing climate-related financial information that provides information about the company’s governance, strategy, risk management, and metrics and targets, especially as it relates to the effect of climate change on their businesses, strategies and financial planning. This lack of information could hinder investors’, lenders’ and other creditors’ ability to assess and price climate-related risks and opportunities.

The report notes that as of September 2024, 30 jurisdictions have decided to use or are taking steps to introduce ISSB Standards in their legal or regulatory frameworks and this should support the provision of more comparable and reliable information about sustainability-related risks and opportunities for global capital markets. However, the report also notes that fragmentation in regulatory requirements caused by jurisdictional modifications to ISSB Standards, in particular modifications that result in removing or excluding requirements in ISSB Standards, could conflict with the objective of delivering timely and comparable sustainability-related financial information to capital markets. This fragmentation also adds complexity to those using the information and adds costs and complexities to preparers of information subject to inconsistent regulatory requirements.

The degree to which the jurisdictional disclosure requirements are aligned with ISSB Standards is an aspect that needs to be monitored to assess progress towards globally comparable information for capital markets.

(IFRS Foundation, Progress on Corporate Climate-related Disclosures – 2024 Report, 12.11.2024 and press release).