On 31 May 2018, the European Fund and Asset Management Association (EFAMA) published its Stewardship Code, setting out best practice principles for asset managers (the Code).

The Code replaces an earlier document, the “Code for External Governance”, and is intended to aid compliance with the revised Shareholder Rights Directive (SRD) (with which Member States must comply by 10 June 2019).

The aim of “stewardship” is, broadly, to make sure that companies’ operational processes and policies are robust and responsible. Whilst EFAMA’s previous guidance focussed on the exercising of ownership rights, and in particular voting and monitoring, the Code goes further, encouraging publication of an engagement policy which describes how the asset manager approaches stewardship. In it, EFAMA describes stewardship as being “engagement, ie monitoring of and interaction, with investee companies”, as well as the exercising of voting rights. Unlike the Financial Reporting Council’s UK Stewardship Code (the adoption of which is mandatory for UK authorised investment managers), adoption of the Code is currently voluntary. However, both codes apply a “comply or explain regime”.

EFAMA members are now encouraged to show, in an engagement policy, how they intend to integrate engagement into investment strategies, and how dialogue is conducted with investee companies. Previously an escalation option, this dialogue is now seen by EFAMA as an integral part of how managers act in investors’ interests. The changes are also intended to, EFAMA says, “encourage best business and management practices in companies on environmental, governance, human rights and social challenges”.

Ahead of SRD implementation, the Code is intended to provide useful guidance to asset managers across Europe as to how they should develop engagement processes, and also provide investee companies with an idea of the interaction and monitoring they might have to expect in the future.

Separately, the FRC is due to revise its UK Stewardship Code this calendar year (2018).