The U.K. Financial Reporting Council will publicly grade money managers on how well they follow a stewardship code that sets standards for investors to monitor and engage with companies they own.
The FRC will start the grading in July in an effort to help improve long-term risk-adjusted returns to shareholders, by improving the quality of dialogue between investors and companies.
Asset owners will better evaluate how well their money managers deliver related to the code, and the improved reporting will help engagement-focused owners to choose the right manager, said a news release by the FRC on Monday.
The FRC will assess managers’ reporting against the code, and publicize the results in two tiers.
Tier 1 managers will meet reporting expectations in relation to stewardship activities. Money managers will also be asked to provide evidence of the implementation of their approach to stewardship; and the FRC will focus on conflicts of interest, evidence of engagement and approach to resourcing and integration of stewardship.
Those classed as tier 2 will be those that do not meet reporting expectations.
The FRC said firms will be contacted with feedback to give them time to improve their situations, before the assessment is made public.
“The Stewardship Code has helped to raise the profile of stewardship, normalized discussions about stewardship in the investment chain and led to improvements in the quality and quantity of engagement between investors and companies,” said Sir Winfried Bischoff, chairman of the FRC, in the release. “We wish to maintain momentum by ensuring that signing up to the Stewardship Code is a true marker of commitment.”
All money managers authorized in the U.K. are required under the Financial Conduct Authority’s conduct of business rules, to produce a statement of commitment to the code, or explain why it is not appropriate to their business model. That requirement has been in place since December 2010.
The Stewardship Code is available on the FRC’s website.
