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Cracking the Code – understanding the updated 2020 Stewardship Code

October 2020

The Financial Reporting Council (FRC) updated its Stewardship Code at the start of this year. We summarise what you need to know and why it matters to you and your clients.

What is the Stewardship Code?

First published in 2010 by the FRC, the Stewardship Code was a response to widespread governance failings unveiled by the global financial crisis. It contained principles and guidance to enhance the quality of engagement between institutional investors and investee companies.

Its aim was to improve long-term returns to shareholders by helping businesses to operate more responsibly and improve their governance. It encouraged companies and long-term investors to forge honest and open relationships based on accountability. And it enabled investors to exercise constructive influence where necessary. Companies signed up to the Code voluntarily as a demonstration of their commitment to these worthy goals.

So what’s changed?

The updated 2020 Stewardship Code calls for greater transparency and disclosure than the original. It now requires companies to report annually on their actions and provide evidence of how they have applied the Code over the year. The FRC then assesses these reports and those that pass the test can remain as signatories to the Code.

In the decade since the original Code, the role of environmental, social and governance (ESG) factors in investment risk and performance has grown. The updated Code now reflects this and contains new expectations of how investment and stewardship should be integrated, including ESG issues.

There are also 12 new principles for asset managers and owners, and six new principles for service providers to help them engage with one another better. The Code’s ultimate aim is to create long-term shareholder value, which will lead to sustainable benefits for the economy, the environment and society.

Why does it matter to you and your clients?

Better corporate governance, a more sustainable environment and a resilient economy – issues the Code directly and indirectly addresses – are in all our interests. Good governance and stewardship are crucial in the proper management of companies – helping them operate responsibly.

Moreover, companies that adopt best practices in corporate governance and risk management can be shown to deliver superior long-term sustainable returns. And that includes the way they manage environmental and social risks.*

Beyond the financial return, more and more of your clients will want to know that their money is invested responsibly. And many of them will also have sustainability goals. Demonstrating an understanding of the Code and proving that your investment managers and service providers are signatories may increasingly feature in your client conversations.

Our approach to stewardship

The 2020 UK Stewardship Code is aimed primarily at firms with institutional investors however reflects what we’ve been doing all along at Aberdeen Standard Capital (ASC). As a firm with primarily a retail base, we are not official signatories to the Code however we embody the Code by investing in companies we believe can create long-term value for clients.

We integrate stewardship into our quality sustainable growth investment approach in three ways.

  • We invest in companies that provide long-term structural growth opportunities. Alongside our Aberdeen Standard Investments (ASI) colleagues we meet with management to gain greater insights and understand a company’s key risks and culture. We also want to know that they operate with integrity, are accountable and adhere to international standards.
  • Where applied, our voting practices include when we can voting on resolutions presented at company AGMs. We adopt the ASI voting policy that is optimised for different jurisdictions to ensure we utilise these votes as effectively as possible. For example, in the UK, when we can we will vote against board appointments that don’t support the target of 30% female representation, however, this policy would have less effect in Europe where gender diversity is already higher and so the policy there is targeting 50%.Where applied, our voting practices include when we can voting on resolutions presented at company AGMs.
  • As part of Aberdeen Standard Investments, we advocate for positive change by engaging with company management and boards directly. In addition, the Governance and Central ESG Teams work alongside other investment managers, large investors and industry bodies to advocate for positive change. For example, in 2019, ASI joined the Church of England Pensions Board, the Swedish Council on Ethics and a number of other investment managers to pressure mining companies to improve the safety record of their tailing dams by adopting international standards and agreeing to independent audits. This is not signing our name on a petition but rather actively working with industry participants and engaging with companies.

As the discretionary investment arm of Aberdeen Standard Investments (ASI), we benefit from the insight and activities of ASI. ASI was one of the first signatories to the original Stewardship Code and remains a strong supporter of the updated directive.

But our stewardship approach is not just focused on investee companies. We set similarly high standards for ourselves. It’s important to us that we are accountable to our clients as stewards of their investments and assets. Therefore, we commit to transparent and open communications with them and all stakeholders. Reflecting this, ASI publishes quarterly ESG reports, where you can read details of its engagement activity with companies across its global investments.

Ultimately, we believe the Stewardship Code helps enhance the long-term value of our clients’ investments and to protect their interests when necessary. To find out more, please get in touch with your usual contact at Aberdeen Standard Capital.

You can also email us at asc@aberdeenstandard.com or visit aberdeenstandardcapital.com/en/investment-approach/responsible-investing

*Research by Friede, Busch & Bassen – 2015 entitled ‘ESG & Financial Performance’ aggregated evidence from more than 2000 empirical studies. The research states that in 62% of studies there is a positive correlation between governance and corporate financial performance. The same is true in in 58% of environmental studies and 55% social studies as the same correlation applies.


Investment involves risk. - The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.