FRC overhauls Investor Stewardship Code for 2026

On 3 June 2025, the Financial Reporting Council (FRC) published the UK Stewardship Code 2026 that will take effect from 1 January 2026.

In the last week, the head of the FRC, Richard Moriarty commented that the regulator would be taking "an axe" to the Code that was first introduced back in 2010 following the 2008 financial crisis.

The publication of the updated Code follows extensive stakeholder consultation on the effectiveness of the existing Code. According to the FRC, the aim of the new Code is to support long-term sustainable value creation while significantly reducing the reporting burden for signatories, of whom there are currently nearly 300 who represent around £50 trillion in assets under management. Overall, the move by the FRC is part of its wider strategy to support the government's goal of driving economic growth. 

The Code operates alongside the Financial Conduct Authority's oversight of financial markets, the Department for Work and Pensions' pension scheme regulations and the Pensions Regulator's protection of member interests. 

The new Code includes an updated definition of stewardship as “responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries”.

The FRC has included fewer principles in the Code as well as shorter "how to report" prompts instead of detailed reporting expectations. According to the FRC, early evidence suggests that signatories may be able to reduce reporting volumes by 20-30% while maintaining quality. The new Code also includes dedicated Principles for different types of signatories including asset owners and asset managers. For the first time, specific Principles have been included for proxy advisors, investment consultants, and engagement service providers.

The new Code also creates a more flexible reporting structure, by enabling Policy and Context Disclosures and Activities and Outcomes Reports to be submitted either separately or as a combined document. The Policy and Context Disclosure will only need to be submitted once every four years, while the Activities and Outcomes Reports must be submitted every year.

After the Code's introduction on 1 January 2026, a transition year will follow, during which no existing signatories will be removed from the signatory list following their 2026 application. The aim of this is to give signatories time to familiarise themselves with the Code's new format.

Richard Moriarty, the CEO of the FRC, stated that: "The Code is not prescriptive and does not direct how any signatory should choose to invest. It takes a principles-based approach which is focussed on delivering a clear outcome of value creation for clients and beneficiaries."

The FRC has also introduced draft guidance to assist with reporting to the Code. The guidance is optional, rather than prescriptive. The FRC notes that many current signatories of the Code will be able to prepare their reports without referring to it.  The guidance provides useful tips and examples to support effective implementation, particularly for those managing non-equity asset classes. The FRC is welcoming any comments on it before 31 August 2025.

Takeaways

The Chartered Governance Institute UK & Ireland had previously raised concerns that the definition of 'stewardship' focussed too much on one element of stewardship, that of the fiduciary stewardship of client monies, but lacked focus on the other element – the stewardship responsibilities to wider society as the owner of a company. The new definition of 'stewardship' now aligns the duties of investors with those of the directors of a company under the Companies Act. 

The updated Code further identifies that signatories when applying the Principles need to pay particular attention to their directors' duties as set out under section 172 of the Companies Act 2006 that refer to directors' duties to promote the success of the company.

Business leaders may welcome the FRC's recent comments that stewardship reports should not have to "feel like a box-ticking exercise." Only time will tell as to whether the FRC's promise to take an axe to the Code will promote long-term economic growth. 

To read the new Code, please click here.