‘Disappointing’ - FRC drops ESG from stewardship definition
The UK’s Financial Reporting Council (FRC) has released an updated version of its widely observed Stewardship Code, which no longer explicitly refers to environmental and social benefits, a move some in the industry have labelled disappointing
The code, designed to set a benchmark for best practice in stewardship, has been widely supported across the UK financial sector. It currently counts more than 300 signatories, including asset managers and owners representing approximately £50trn in assets under management.
A change in definition
The new version of the code was developed following consultation with more than 1500 stakeholders and aims to improve industry understanding of stewardship while reducing the reporting burden for signatories. It enters into effect in January 2026.
However, the revised definition introduces a notable omission. The 2020 version described stewardship as responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
In contrast, the new definition states that stewardship is the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries.
This removal of references to the environment and society has prompted criticism.
Industry backlash
Sarah Wilson, CEO of Minerva Analytics, an independent ESG research and proxy voting agency, said the change was “disappointing” and accused the FRC of “pandering to political influences”.
Oscar Warwick Thompson, head of policy and regulatory affairs at the UK Sustainable Investment and Finance Association (UKSIF), warned that the revised wording risks sending “mixed signals to some investors”.
“The definition effectively sets the overall tone of the code and the interpretation of its principles,” he said. “We have concerns over how the revised language may be interpreted by financial market participants. We do, however, note the definition’s references to ‘wider systems’ in the supporting statement. This appears to highlight that investors should still have regard to the economy, the environment and society, upon which beneficiaries’ interests depend.”
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UKSIF had previously campaigned for the code to retain explicit reference to environmental and social factors, the initiative had also received the backing of the UK's Pensions industry body PLSA.
A credible definition?
Asset owners have so far responded with caution. Adam Matthews, chief responsible investment officer at the Church of England Pension Board, stressed that the credibility of the code would ultimately be determined by its uptake among investors.
“Obtaining the code requires a considerable investment of time and resource,” he said. “We will be reflecting carefully as a pension fund on whether the changes reflect the feedback we and other pension funds provided, and whether the code best serves our members’ long-term interests.”
“We will also be engaging in discussion with peer UK asset owners before we make a judgement if this remains a credible code or whether it is time for UK asset owners to come together to define their own expectations and those of their fund managers that serve us.”
Spotlight on service providers
The revised code also introduces a standalone section addressing the role of service providers, a move that has drawn mixed reactions.
Wilson criticised the FRC’s approach, suggesting it reflected pressure from political narratives about proxy advisors. “There is an ongoing political trope that proxy advisors provide inaccurate research, yet disclosures from the BPPG reporting show overwhelmingly that service quality is taken extremely seriously and that differences arise from differing opinions,” she said. “It’s just not borne out by the facts, and it’s disappointing to see the FRC seems to have succumbed to ongoing lobbying.”
UKSIF, on the other hand, welcomed the enhanced focus on service providers, acknowledging their increasing relevance in the stewardship ecosystem.
“Going forward, there remains more work for policymakers and the industry to help maintain the UK’s leadership position on stewardship practice,” it said. “This should build on the positive role it can play in supporting the transition to a more sustainable future” said Warwick Thomson.
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