The Stewardship Code is a framework of best practices for institutional investors, such as pension funds, insurance companies, and investment trusts. First introduced in 2010, it provides guidelines on how these entities should engage with their investee companies, particularly in the exercise of voting rights. The Code operates on a ‘comply or explain’ basis, similar to the UK Corporate Governance Code.
Key Principles
The Stewardship Code outlines several key principles that institutional investors are encouraged to follow:
- Publicly Disclose Stewardship Approach: Investors should explain their approach to stewardship and governance.
- Conflict Management: Clear guidelines for managing conflicts of interest.
- Monitoring Investee Companies: Regular monitoring of investee companies’ performance and governance.
- Engage in Dialogue: Proactive engagement with investee companies.
- Exercise Voting Rights: Policies on how voting rights are exercised.
- Collective Action: Collaboration with other investors where appropriate.
- Reporting on Stewardship Activities: Transparency in disclosing stewardship activities and outcomes.
Applicability
The Code is primarily aimed at institutional investors, including:
- Pension funds
- Insurance companies
- Investment trusts
- Asset managers
Importance
- Encourages Accountability: Ensures that institutional investors act in the best interests of their clients and beneficiaries.
- Promotes Transparency: Fosters greater transparency in investment practices and decisions.
- Enhances Corporate Governance: Leads to improved corporate governance practices among investee companies.
- Facilitates Sustainable Investment: Encourages long-term, sustainable investment strategies.
- Corporate Governance: The system of rules, practices, and processes by which a company is directed and controlled.
- ESG Investing: Investment strategies that consider environmental, social, and governance factors.
- Proxy Voting: The process by which a shareholder delegates their voting power to a representative.
- Fiduciary Duty: The legal obligation to act in the best interest of another party, such as the beneficiaries of a pension fund.
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