The newcomer’s guide to: UK Stewardship Code

Written By:

Tom Parker
Lead Writer
LAPF Investments

From banking bailouts to boardroom accountability, we look at how the voluntary UK Stewardship Code evolved from crisis response into a comprehensive framework transforming pension fund governance practices

In mid-August, several funds and pools – including LGPS Central, Border to Coast and Wiltshire Pension Fund – announced they had achieved signatory status for the Financial Reporting Council’s (FRC) Stewardship Code for 2026. They join nearly 300 signatories to The Code, who collectively represent around £50 trillion in assets under management.

Set up against the backdrop of the Global Financial Crisis, this voluntary framework was designed by the regulator to promote responsible investment practices among asset managers, asset owners and service providers.

History of the UK Stewardship Code

Like many of these things, the UK Stewardship Code can trace its history back to a government-launched review – namely the Walker Review. It came just months after the worst of the financial crisis was felt in the UK. This came between September and October 2008, with the bankruptcy of Lehman Brothers in September of that year causing shockwaves across global financial markets.

In the UK, this was most visibly demonstrated in the near collapse of two major financial institutions: the Royal Bank of Scotland (RBS) and HBOS.

The biggest mortgage lender in the UK at the time, HBOS saw its share price plummet by 33% in just one day after the fall of Lehman Brothers. This resulted in a global liquidity freeze – something that had a direct impact on institutions like HBOS which were heavily reliant on short-term funding from wholesale markets.

Following this, the organisation was merged with Lloyds in what was a government-brokered takeover.

About four weeks later, the Royal Bank of Scotland’s then chairman – Sir Tom McKillop – reached out to chancellor Alistair Darling to warn him that the bank was on the brink of failure, with it being within hours of running out of money.

This led to the government announcing a bailout of the banks – injecting £37 billion into RBS and HBOS, as well as Lloyds TSB. It also saw the government take a majority stake in RBS, as well as 40% of the merged Lloyds/HBOS entity.

As part of this deal, the government gave guarantees worth more than £1 trillion.

The crisis that sparked this mass nationalisation, in the government’s view, exposed serious governance weaknesses at UK financial institutions. This is where the Walker Review came in.

Commissioned by then prime minister Gordon Brown and chancellor Alistair Darling, the review was spearheaded by former Barclays and Morgan Stanley International chairman Sir David Walker.

In it, he was asked to investigate how governance structures failed to prevent reckless financial practices, and make recommendations as to how to strengthen board-level oversight, and improve shareholder engagement and accountability.

On completion of the review, Walker outlined 39 separate recommendations split across five themes. One of these was to call for the creation of the Stewardship Code. The Code was set up in 2010.

Separately from the Corporate Governance Code, it called on institutional investors and fund managers to comply or explain with The Code as well as participate in monitoring surveys and disclose their commitment. Additionally, they should actively engage, vote and coordinate action where beneficial.

Critically, The Code is voluntary. And working on a “comply or explain” basis means institutions are expected to follow the principles, and if not, they must explain why.

This system encourages more governance in spirit, rather than merely turning it into a box-ticking exercise.

How do firms become signatories of The Code?

First and foremost, firms must apply to become signatories of The Code – with the FRC reviewing each firm’s annual Stewardship Report, which must show how they applied the principles in practice.

If it doesn’t meet the regulator’s quality expectations, the firm will either not be accepted, or re-accepted, as a signatory.

Each year, it publicly publishes a list of signatories and highlights any good practice it has observed.

As part of this process, the FRC issues updated guidance each year, meaning firms face continuous pressure to improve their stewardship and disclosures or risk being delisted.

There were seven foundational principles from its inception in 2010 – first and foremost being that businesses must publicly disclose their stewardship policy. This includes the second foundational principle, namely the policies it uses to manage conflicts of interest.

Investors should also monitor the companies they invest in, and should be willing to act collectively with other investors where appropriate.

Outside this, they should have a clear policy on voting and disclose their voting activity, report periodically on their stewardship and voting activities. Finally, clear guidelines should be established on when and how investors will escalate their activities to protect and enhance shareholder value.

What forms part of the 2026 Code?

Since its inception, The Code has only been updated three times – with two following the election of the current Labour government.

The first of these, coming in July of last year, led to the regulator announcing it would focus on five key themes as it revised The Code: Purpose, Principles, Proxy Advisors, Process and Positioning.

It also made five immediate changes to reduce the reporting burden on existing signatories. This included setting clear expectations of what is considered an “outcome” for stewardship purposes.

Additionally, it was more explicit in allowing for the use of content from previous reporting, and the cross-referencing of such reports.

Outside this, it removed requirements for the annual disclosure of all “Context” reporting expectations and against “Activity” and “Outcome” reporting expectations for some principles.

Speaking at the time, FRC chief executive Richard Moriarty said: “It is right that we continue to challenge ourselves to ensure that The Code is operating in a way that is proportionate and minimises reporting burdens on signatories and supports the growth and effectiveness of the UK capital markets.”

Its latest update, the UK Stewardship Code 2026, saw it divided into two parts: Policy and Context Disclosure, and an Activities and Outcomes Report.

As part of the Policy and Context Disclosure, signatories must submit a report to the regulator every four years with information about what their organisation does, the types of clients and asset owners they serve, and a breakdown of their assets under management – both by asset class and investment style.

The regulator is also looking for details as to how their governance structure enables oversight and accountability for effective stewardship, and how this work is resourced.

As part of this, signatories must provide details of their conflicts of interest policy, supplemented by examples of real or potential conflicts related to stewardship, and explain how they are managed.

Applicants are also required to submit a yearly Activities and Outcomes Report to demonstrate how they have applied the principles through the activities they have undertaking and, crucially, the outcomes of these activities.

Signatories – both current and prospective – have two windows to submit the reports, one in the Spring and the other in the Autumn.

How has the LGPS applied these principles?

All in all, 35 members of the LGPS are signatories of The Code, with these being as follows:

Pools
ACCESS Pool, Border to Coast, Brunel, LGPS Central, London CIV, Wales

Funds
Bedfordshire, Cambridgeshire, Cheshire, Clwyd, Cornwall, Cumbria, Derbyshire, Devon, East Sussex, Environment Agency, Essex, Greater Manchester, Hampshire, Lincolnshire, Hackney, Lambeth, Merseyside, Northern Ireland Government Officers’ Superannuation Committee, Oxfordshire, Scottish Borders, Shropshire, South Yorkshire, Staffordshire, Strathclyde, Tyne and Wear, West Midlands, Westminster, West Yorkshire, Wiltshire, Worcestershire

As per the rules of The Code, each has published an individual Stewardship report – looking at things like their governance and strategy, their investment beliefs, and the manager oversight structures they have in place.

The reports also highlight how each is engaging with some of the businesses they are investing in.

For example, when a fatal mining accident occurred at an ArcelorMittal mine in Kazakhstan, pool LGPS Central raised concerns about the mine’s emergency protocols and executive incentives which resulted in the owner committing to improving its disclosures and safety audits.

The pool also worked with one of its partners, DTZ Investors, to enhance its due diligence processes for building contractors to a level beyond the general compliance standards of the UK Modern Slavery Act. This includes whistleblowing mechanisms, rigorous due diligence checks, and prompt reporting on breaches.

London CIV, meanwhile, co-filed a shareholder resolution with ShareAction urging Barclays to address stranded asset and systemic financial fuel financing.

It also voted in favour of a shareholder proposal calling on Apple to disclose racial and gender pay gaps using UK-style median pay gap metrics.

As for NILGOSC, it was one of only 4.4% of shareholders to support a push for Walmart to adopt a living wage policy, also voting for a shareholder resolution requesting increased transparency by Amazon.

Outside their active activist involvement in firms they are investing in, the funds and pools also provide details for their current company structures.

NILGOSC, for example, conducts triennial strategic reviews. These include SWOT analyses, stakeholder mapping, and consultation.

It also subjects itself to external review every five years and conducts annual self-assessment and performance appraisals for all of its members.

LGPS Central and London CIV, meanwhile, use EOS as an external stewardship provider – with both using it for shareholder voting work and engagement with companies on ESG issues.

In the funds world, organisations including South Yorkshire and Tyne and Wear publish quarterly stewardship reports detailing voting, engagement and ESG metrics.

They both also conduct annual reviews of key policies around responsible investment and climate change, as well as their investment strategy statements all while using the UN Sustainable Development Goals and Task Force on Climate-related Financial Disclosures as a framework.

As well as this, they each have clear escalation pathways if any stewardship issues are found in those firms they are investing in – including voting against management and filing shareholder resolutions, and even divestment as a last resort.

The UK Stewardship Code’s evolution from crisis response to comprehensive framework demonstrates how regulatory innovation can emerge from financial turbulence.

Its “comply or explain” approach has proven particularly effective, encouraging institutions to embrace stewardship in spirit rather than merely tick regulatory boxes.

With 35 LGPS entities now among nearly 300 signatories representing £50 trillion in assets, these pension schemes are playing a crucial role in shaping corporate governance across the UK. As The Code continues to evolve, it stands as a testament to how thoughtful regulation can drive positive change while adapting to institutional needs.

UK Stewardship Code Principles (2020)

Purpose, Strategy and Culture
Promote long-term value creation through a clear purpose and aligned culture.

Governance, Resources and Incentives
Ensure governance structures and resources support effective stewardship.

Conflicts of Interest
Identify and manage conflicts to protect client and beneficiary interests.

Promoting Well-Functioning Markets
Support sustainable and efficient financial markets.

Review and Assurance
Regularly review stewardship policies and provide assurance on their effectiveness.

Client and Beneficiary Needs
Align stewardship with the needs and expectations of clients and beneficiaries.

Stewardship, Investment and ESG Integration
Integrate stewardship with investment and environmental, social, and governance (ESG) factors.

Monitoring Investments
Monitor assets and service providers to ensure alignment with stewardship goals.

Engagement
Engage with issuers to improve performance and manage risks.

Collaboration
Collaborate with others to enhance stewardship outcomes.

Escalation
Escalate stewardship activities when necessary to protect value.

Exercising Rights and Responsibilities
Exercise voting and other rights responsibly to influence corporate behavior.