Fiduciary culture, stewardship codes and standards

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Fiduciary culture

A fiduciary is ‘a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests’. 1

As the ultimate aim of stewardship and engagement is to enhance shareholder value over the long-term, they are in many ways the practical implementation of fiduciary duty. However, in recent years this has not always been the prevailing view in all regions. In the US until recently, some investors defined fiduciary duty in much narrower terms 2[ii], arguing that it in fact precluded the inclusion of ESG factors as they did not view these factors as contributing to the financial success (or not) of an investment decision and therefore perhaps even contrary to fiduciary duty. This view contributed to the Trump era legislation, overturned early in the Biden Administration, that prohibited pension plans from investing with social or environmental goals, as opposed to pure financial goals. 3

Professor Susan Gary of the Oregon School of Law summarises the need for fiduciaries to integrate ESG considerations as part of being a prudent investor:

“The duty to act as a prudent investor is of central importance to anyone acting as a fiduciary … since the duty of impartiality protects future beneficiaries, that duty requires a long-term investment time horizon, increasing the need to take ESG information into consideration. It follows that a prudent fiduciary investor not only may, but should, use ESG information in developing financial policy and decisions.” 4

Recent research from White Marble confirmed the preeminence of a strong fiduciary culture as a core requirement for investors in both the UK institutional and wholesale markets when assessing an investment manager on their sustainability credentials.

Stewardship codes and standards

UK Stewardship code 2020

The UK Stewardship Code 2020 saw a significant update to the UK Stewardship Code with 2021 submissions the first round to be assessed against the new criteria.

The new code includes twelve principles (plus an alternate six for service providers), in place of the existing seven.

However, the biggest change from the previous iteration is the “increased ambition for practical delivery by signatories”. Investors are now expected to report on outcomes from their activities, rather than just their intentions as was the case previously.5

The FRC make their expectations of the responsibilities of asset managers and owners clear: “Asset owners and asset managers cannot delegate their responsibility and are accountable for effective stewardship. Stewardship activities include investment decision-making, monitoring assets and service providers, engaging with issuers and holding them to account on material issues, collaborating with others, and exercising rights and responsibilities. Capital is invested in a range of asset classes over which investors have different terms and investment periods, rights and levels of influence. Signatories should use the resources, rights and influence available to them to exercise stewardship, no matter how capital is invested.” 6

The principles of the 2020 Stewardship Code are as follows:

Principles for asset owners and asset managers

Purpose and Governance

Principle 1Signatories’ purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.
Principle 2Signatories’ governance, resources and incentives support stewardship.
Principle 3Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first.
Principle 4Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first.
Principle 5Signatories review their policies, assure their processes and assess the effectiveness of their activities.

Investment approach

Principle 6Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them.
Principle 7Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.
Principle 8Signatories monitor and hold to account managers and/or service providers.


Principle 9Signatories engage with issuers to maintain or enhance the value of assets.
Principle 10Signatories, where necessary, participate in collaborative engagement to influence issuers.
Principle 11Signatories, where necessary, escalate stewardship activities to influence issuers.

Exercising rights and responsibilities

Principle 12Signatories actively exercise their rights and responsibilities.

Principles for service providers

Principle 1Signatories’ purpose, strategy and culture enable them to promote effective stewardship.
Principle 2Signatories’ governance, workforce, resources and incentives enable them to promote effective stewardship.
Principle 3Signatories identify and manage conflicts of interest and put the best interests of clients first.
Principle 4Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.
Principle 5Signatories support clients’ integration of stewardship and investment, taking into account, material environmental, social and governance issues, and communicating what activities they have undertaken.
Principle 6Signatories review their policies and assure their processes.

For more detail on the principles read pages 6-29 of the 2020 UK Stewardship Code

Challenges asset managers are facing to successfully comply with the new code

Read: FRC – Effective Stewardship Reporting. Examples from 2021 and expectations for 2022 pg 4-5, 9-13

Key points:

  • Improvement is needed in reporting on:
    • How signatories are managing market-wide and systemic risks
    • Signatories’ approach to stewardship in asset classes other than listed equities
    • Conflicts of interests, review and assurance, and monitoring agents
    • Engagement and outcomes
  • Stewardship reports are a communication tool, not just a regulatory disclosure.
  • Applicants need to take care to address all the principles and reporting expectations relevant to their organisation – this was a leading cause of failure among early submissions.
  • Reports should focus on the stewardship activities and outcomes from the reporting year, and not just disclose policies and general approach.
  • Reports should be self-contained – the FRC do not consider other sources of information and/ or supporting document in their assessment.
  • Organisations should reference all the principles – even if they are not relevant (this should be explained rather than simply omitted).
  • Rationale for approaches is important, it is not sufficient to just state an approach/position.
  • Effective reporting makes appropriate use of both qualitative and quantitative information.
  • Reports should be fair, balanced and understandable; honest and clear about the activities undertaken and acknowledge setbacks and lessons learnt as well as successes.
  • Reports should include reflections on how well an organisation, as well as its policies and processes, is set up to support effective stewardship and how approaches are evolving or improving over time.
  • Applicants must include the process for the review and approval of the report by their governing body.

Global Stewardship Codes


Following the Shareholder Rights Directive II (SRD II) that came into force in June 2019 the number of stewardship codes in Europe is likely to increase as SRD II raises expectations in each country about the level of stewardship carried out by local investors. This is likely to supersede previous voluntary codes such as the EFAMA Stewardship Code.

Suggested Read: EFAMA Stewardship Code

United States

In the Unites States, the Employee Retirement Income Security Act of 1974 (ERISA) sets expectations for stewardship responsibilities. The Act requires that advisers should act as fiduciaries in relation to their beneficiaries and lays out the obligation of funds to vote at investee company general meetings and engage with companies to enhance economic value.

1Investopedia. 2021. What Is a Fiduciary?. [online] Available at: <>.

2The Harvard Law School Forum on Corporate Governance. 2021. ESG and Fiduciary Duties: A Roadmap for the US Capital Market. [online] Available at: <>. 2021. Pension plans pressured over ESG investments | Norton Rose Fulbright. [online] Available at: <>.

4Gary, S., 2019. Best Interests in the Long Term: Fiduciary Duties and ESG Integration. University of Colorado Law Review, [online] Available at: <>.