Investors told to consider the environment under new Stewardship Code

Investors will be expected to consider environmental, social and governance (ESG) issues under a new Stewardship Code proposed today by the Financial Reporting Council (FRC).

The FRC said the updated code would set “substantially higher“ expectations, and force investors to report on how their values and cultures help them meet their clients' needs.

Moreover, investors will be required to apply stewardship across a wider range of assets, not just listed equity, both globally and in the UK, subject to consultation.

First released in 2010, the Stewardship Code is part of company law and applies to all fund managers, but also “strongly encourages“ institutional investors to disclose their compliance levels.

FRC chair, Sir Win Bischoff, said the changes proposed put the code at the “forefront of stewardship internationally“.

“It recognises significant changes in the investment industry and stewardship landscape,“ he continued.

“It sets both higher expectations for stewardship practice and introduces more rigorous public reporting with a focus on outcome and effectiveness.“

The FRC said the proposals, which are based on feedback from 170 members of the investment community, would ensure the code aligns with the UK Corporate Governance Code.

This comes after the European Insurance and Occupational Pensions Authority (EIOPA) published a range of sustainability proposals for investment strategies last year.

These will require investors to consider the physical and transitional risks of climate change, as outlined by the Task Force on Climate-related Financial Disclosures.

Willis Towers Watson senior director, Keith Goodby, said: “Investment portfolios will also need, where relevant, to reflect policyholders' ESG preferences.

“The EIOPA's proposals represent the biggest and most ambitious step forward in sustainable investment policy for insurers to date.“

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