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Jul 05, 2022

Investors adopting more ‘holistic’ approach to engagement, finds FRC survey

Research commissioned to investigate impact of the UK Stewardship Code 2020

Investors are looking beyond voting at AGMs and adopting a broader range of tools for engaging with listed companies, according to new research from the UK’s Financial Reporting Council (FRC).

The study polled the views of 55 asset managers and owners following the introduction of the UK Stewardship Code 2020, which placed new responsibilities on investors over their engagement practices.

‘While engagement and voting around shareholder meetings continue to be important, respondents describe making more use of other techniques and engaging on a wider range of themes than those on the AGM agenda,’ write the report authors.

Investors are engaging more around non-financial topics, like climate change and diversity, sending more campaign-specific letters, especially focused on transition plans, and expanding the number of companies they engage with, says the FRC.

In addition, the research finds that collaborative engagement is ‘an increasingly important escalation tool for most respondents’. Asked to name stewardship-escalation methods, investors place collaboration with other firms at the top of the list, along with letter writing and voting against company management recommendations.

The UK’s Stewardship Code was significantly revised in 2019, with the new version covering a wider range of assets, including debt securities, and placing more focus on engagement practices and outcomes. Asset managers and owners, as well as service providers, can apply to be signatories, but they must pass a rigorous approval process.

Engagement boost

Most investors feel engagement between investors and companies has improved as a result of the new code, reports the FRC. Around three in five respondents (61 percent) say the quality of engagement is moderately better and 16 percent say it is very much better, while 24 percent think the standard has stayed the same.

The survey also finds that almost all investors have beefed up stewardship teams at their organization. Just over half (53 percent) say they have increased staffing slightly and 43 percent say the uptick has been significant. Further hiring is expected, with 92 percent of respondents saying they plan to boost stewardship teams further over the next one to two years.

‘We commissioned this independent research so that we could assess the impact of the revised code on stewardship practices, and it is very encouraging to see how the quality of practice and reporting have improved under its influence,’ says Jon Thompson, the FRC’s CEO, in a statement.

‘We will learn from this research to maintain our standing as world-leaders in this area and continue to build on the code’s effectiveness.’