Asset managers forced to disclose pandemic failures under new Stewardship Code

June 25, 2020

Under the revised UK Stewardship Code 2020, which has a stronger focus on systemic risk than the 2012 edition, asset managers and owners will have to reveal whether risks from pandemics such as Covid-19 were accounted for in their risk assessments and investment activities. Despite warnings that outbreaks of infectious diseases pose serious risks to business – with parallels drawn with the likes of climate change – asset managers seem to have missed the mark in identifying pandemics as a risk. While detractors might think that there is a limit to the number of low-probability risks that companies can focus on, asset managers – whose raison d’être is to create wealth sustainably – are expected to be less short-sighted and more prudent. While the Code is voluntary, the UK regulator, the Financial Conduct Authority, requires UK-authorised asset managers to state whether they applied the Code. Beyond regulatory pressures, companies are also urged to comply and exhibit active stewardship due to rising expectations from society. Business leaders are also expecting the pandemic to accelerate the shift to stakeholder capitalism.

The Code describes stewardship as “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment, and society”. For asset managers, this could mean thinking about long-term value creation beyond the next quarter. Further consideration could be given to setting up policies and processes to support stewardship, and promoting and exercising stewardship among its portfolio companies. The new Code is likely to push asset managers, investors and companies to engage in deeper conversations to fulfil their stewardship responsibilities. With more parties taking action, leaders and laggards will become more apparent – hence now is the time to place stewardship squarely on the agenda.