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Insight ranked in top tier of UK Stewardship Code signatories
The UK Stewardship Code (the Code) is overseen by the Financial Reporting Council (FRC), the UK's independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. The Code sets out the principles of effective stewardship by investors. It is implemented according to a “comply or explain” system.
The UK Stewardship Code is built on seven principles, requiring investors to:
- Publicly disclose their policy on how they will discharge their stewardship responsibilities
- Have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed
- Monitor their investee companies
- Establish clear guidelines on when and how they will escalate their stewardship activities
- Be willing to act collectively with other investors where appropriate
- Have a clear policy on voting and disclosure of voting activity
- Report periodically on their stewardship and voting activities
The FRC encourages all institutional investors to publish a statement on their website of the extent to which they have complied with the Code. These disclosures are important because they help companies understand the approach and expectations of their major investors, they help those issuing mandates to asset managers to make a better informed choice, and they help asset managers to understand the expectations of current and potential clients.
In 2016, the FRC conducted a formal assessment of the signatories to the Stewardship Code based on the quality of their Code statements. This work was undertaken to improve the quality of reporting against the Code, encourage greater transparency in the market and maintain the credibility of the Code.
Asset manager signatories were ranked into one of three tiers as follows:
- Tier 1: Signatories provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary.
- Tier 2: Signatories meet many of the reporting expectations but report less transparently on their approach to stewardship or do not provide explanations where they depart from provisions of the Code.
- Tier 3: Significant reporting improvements need to be made to ensure the approach is more transparent. Signatories have not engaged with the process of improving their statements and their statements continue to be generic and provide no, or poor, explanations where they depart from provisions of the Code.
Insight was delighted to be given a Tier 1 status in the assessment.
Ranking of asset manager signatories to FRC Stewardship Code
Apart from demonstrating our commitment to good stewardship practices, the FRC’s assessment is welcome for two reasons. The first is that it brings a welcome accountability into the stewardship and corporate governance area. For some years, there has been a concern that investors have signed up to the Code and issued a Code statement but then failed to implement the Code. The fact that many Code statements have not been updated is indicative of a general lack of investor action in this area. We encourage the FRC to continue to assess the overall quality of reporting to ensure that momentum is maintained in this important area.
The second is that the FRC acknowledged that the Code is relevant to fixed income investors. We met with the FRC in mid-2016. One of the topics we discussed was the importance of encouraging fixed income investors to play an active role in corporate governance and of the FRC acknowledging this both in their review of Code statements and in the future evolution of the Code. Our Code statement, while including a description of how we engage and vote on listed equities, emphasises that our primary exposure to the UK market is through fixed income investments.
Insight North America LLC (INA) is a registered investment adviser under the Investment Advisers Act of 1940 and regulated by the US Securities and Exchange Commission. INA is part of “Insight” or “Insight Investment”, the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited, Insight Investment International Limited, Cutwater Asset Management Corp., and Cutwater Investor Services corp. Insight’s assets under management are represented by the value of cash securities and other economic exposures, and are calculated on a gross notional basis. Advisory services referenced herein are available in the US only through INA.
The views herein represent the opinions of Insight and are subject to change based on subsequent developments. They are not intended as investment advice or to predict or depict the performance of any investment. The material contained herein is not intended to provide, and should not be relied on for, investment, accounting or legal tax advice. Further, this material does not constitute a recommendation to buy, sell or hold any security. No offer or solicitation for the sale of any security or financial instrument is made hereby.
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