The UK Stewardship Code 2020 – analysis and insights for asset owners

EY’s second insights paper on investor stewardship, reporting and engagement following the release of the UK Stewardship Code 2020.

The defining issues of 2020 demand purposeful and responsible stewardship. This year has seen unprecedented economic and social challenges around the world including the COVID-19 pandemic, the global demands for racial equality and the imminent dangers posed by climate change.

Responsible stewardship for today demands a transparent commitment for tomorrow. EY’s second research paper on investor stewardship has been designed to enable a better understanding of how the UK’s top 39 asset owners and asset managers are reporting on and engaging with their investee companies on stewardship. The findings in the report provide a comprehensive view of our analysis, identifying gaps, best practice and recommendations.

EY’s review of the public stewardship reporting of 21 of the largest UK-based insurers, found:

• The trend towards more extensive statements and policies on stewardship activity
  Very few insurers completely absolve themselves of stewardship responsibilities, and some are outlining future plans for delivering more effective stewardship. However, there is a stark reporting divide between asset managers and insurers. Considerably more is needed from insurers to meet the heightened expectations of the 2020 Code.
• These do not necessarily translate to the required evidence of activities and outcomes
  EY’s analysis uncovered limited evidence of how insurers actively engage with asset managers on stewardship priorities. Even where stewardship policies are in place, it is not always clear what specific activities are taken against these. Where outcomes are disclosed, they are often qualitative, impeding efforts to measure their benefits to the economy, the environment and society.
• Many insurers delegate their stewardship responsibilities
  In some instances, insurers acknowledge delegating stewardship responsibilities to asset managers. Yet few, if any, explain how they interact with, and retain accountability for, their asset managers’ stewardship activities. Several insurance in-house asset managers are signatories to the UK Stewardship Code 2012 (the prior stewardship code), despite their corresponding asset owners not being signatories. This presents a conflict risk and the potential for misaligned stewardship expectations.
• There is much room for improvement
  Insurers appear to prioritise climate change, sustainability and societal contribution above other areas for stewardship engagement. Yet even as priorities, the average scores for each of these are generally low. For example, the average score for climate change – the highest-rated subcategory for asset owners - stands at 2.05, which is still significantly lower than the asset manager result for the same stewardship priority. The average score of 1.00 for trust and reputation reflects this being a low stewardship priority for asset owners, despite the critical role trust plays in their social licence to operate.