The concept of the Stewardship Code primarily revolves around improving the way that investment companies manage and oversee the assets entrusted to them by their clients. Developed first in the United Kingdom in 2010 by the Financial Reporting Council (FRC), the code sets a benchmark for firms to demonstrate their commitment to protecting and enhancing the value of their clients' investments. The primary aim is to foster greater transparency and accountability in investment practices, ensuring that asset managers and owners act in the best interests of their stakeholders. It covers various principles such as regular monitoring of assets, clear policy on managing conflicts of interest, and the strategic alignment of asset management activities with the broader financial and non-financial goals of the investors.
One of the critical elements of the Stewardship Code is its emphasis on active engagement rather than passive management. Investment managers are encouraged to take an active role in the affairs of the entities in which they invest, from voting in shareholder meetings to engaging in direct dialogue with boards and management. This proactive approach is intended to influence companies towards sustainable and ethical practices, enhance their performance, and ultimately contribute to the creation of long-term value for shareholders. The code also underscores the importance of transparency in these engagements, advocating for regular reporting to investors about how their assets are being managed and how stewardship responsibilities are being fulfilled.
Furthermore, the Stewardship Code highlights the significance of an integrated approach to environmental, social, and governance (ESG) factors in investment decision-making processes. The integration of ESG considerations is seen not just as a moral imperative but as a core part of risk management and value creation strategies. By encouraging investors to consider the broader impact of their investment choices, the code supports a shift towards more responsible investing. This move is increasingly aligned with the preferences of a growing number of investors, particularly institutional investors, who are keen on ensuring that their investment practices reflect their values and the demands of a rapidly changing global business environment.
Adoption of the Stewardship Code varies globally, with similar frameworks being implemented in other countries such as Japan and Malaysia, each tailored to local market conditions and regulatory environments. The effectiveness of these codes has been a subject of ongoing debate, focusing on the depth and the genuine engagement of asset managers with the principles outlined. Nevertheless, the proliferation of stewardship principles highlights a broader shift in the investment community towards greater accountability, transparency, and responsibility. As financial markets continue to evolve, the principles enshrined in the Stewardship Code are likely to play an increasingly vital role in shaping global investment practices and outcomes.