The 2026 Stewardship Code is a welcome example of balanced proportionate regulation. Hopefully it will lead to more constructive engagement between issuers and investors.

After a consultation process, to which MM&K contributed as did many other interested parties, the FRC published the 2026 UK Stewardship Code on 3 June. In addition, the FRC has published draft reporting guidance on which comments and suggestions are requested before 31 August 2025 with a view to being finalised in the autumn.

The new Code takes effect on 1 January 2026. In our view, it is a welcome piece of thoughtful and proportionate regulation, tailored to the activities, duties and responsibilities of each class of signatory. Separate provisions apply to entities who invest directly and to those who invest through an external manager.

The first thing to note is the new definition of stewardship, which emphasises the importance of creating long-term, sustainable value, makes no direct reference to ESG, although there are references to environmental and social issues, including climate change in the body of the document. For the first time, principles applicable to asset owners and managers are augmented by a separate set of principles aimed specifically at service providers, including proxy advisers whose activities have attracted negative comments from our clients and other companies.

All signatories are required to submit a Policy and Context Disclosure, every four years, as well as an annual Activities and Outcomes Report, which comprises a set of ‘apply and explain’ Principles for asset managers and asset owners. The purpose of the Activities and Outcomes Report is to demonstrate the practical application of stewardship policies and explain how they have supported long-term sustainable value for clients and beneficiaries. The Code urges signatories to report in plain English.

Remuneration Committees should be particularly interested in the disclosure requirements focused on monitoring service providers, engagement, voting policies and ensuring quality of research. By requiring disclosures about the way asset owners, asset managers and proxy advisers engage with their clients and beneficiaries, the Stewardship Code should help issuers’ remuneration committees develop the confidence to engage with their investors to explain proposed deviations from governance code principles.

UK corporate governance codes, including the Stewardship Code, recognise that they provide guidance, not a set of rules, and may be complied with or applied in different ways from company to company. We would hope that the 2026 Stewardship Code will encourage issuers, investors and proxy advisers to recognise and embrace the importance of engagement to raise and discuss proposed policies and actions not on all fours with the relevant code principles. But there have been barriers to overcome.

Two perceived barriers have been:

1. board or board committee reluctance to put forward proposals for discussion, owing to a belief that those proposals, if they deviate from strict code principles, will not be given a fair hearing; and
2. those investors and proxy advisers who have taken the view that proposals not compliant with strict code principles should be voted down.

Neither of the above perceived barriers may tell the whole story but perception, whether accurate or not, is a powerful influence on behaviour.

The direction of travel developed by regulators in the UK Corporate Governance Code, the QCA Code and now the 2026 Stewardship Code is to establish a set of principles, for both issuers and investors, which encourage explanation and engagement should boards believe it is not appropriate or in their company’s best interests to comply with or apply those principles. From 1 January 2026, signatories to the UK Stewardship Code will be subject to clear apply and explain requirements. A measure of the success of the new Stewardship Code will be increases in the levels of engagement and explanation post-1 January 2026.

As part of our work advising on executive remuneration, performance and associated corporate governance, MM&K advises remuneration committees on the formulation and presentation of remuneration-related proposals and on engagement with investors and proxy advisers regarding those proposals. Please contact paul.norris@mm-k.com if you would like to learn more.

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