[Interview] Key to stewardship code is sustainable value, not box-ticking, says expert > 지배구조

With the KOSPI hovering around the 6,000 mark and the retail investor base expanding rapidly, interest in corporate governance has surged in Korea. 

The Lee Jae Myung administration and the ruling Democratic Party have amended the Commercial Act three times since last June in an effort to overhaul Korea’s outdated corporate governance practices. But legislative change alone won’t modernize capital markets or raise companies’ valuations and performance. Hard law is effective only when accompanied by softer norms such as market conventions, internal rules, external evaluations and investor pressure.

What’s known as a “stewardship code,” a set of principles that support institutional investors’ fiduciary duties, is a core element of such soft laws. The code asks pension funds, asset managers and service providers to act as true stewards of other people’s money: to monitor and engage with investee companies, exercise voting rights actively, and manage clients’ assets with a clear sense of responsibility. 

Precisely because stewardship plays such a large role in governance, the Democratic Party’s “K-Capital Markets Committee” (formerly known as the “KOSPI 5,000 Committee,” chaired by Rep. Oh Gi-hyoung) has identified strengthening the Korea Stewardship Code as a key task following the recent amendments of the Commercial Act.

Korea introduced its stewardship code in 2016. Since then, the number of signatories has steadily increased, as has the use of votes against management and the frequency of shareholder engagement.

Despite some tangible achievements, however, there is virtually no robust mechanism for reviewing the code’s implementation, and key principles are often not properly observed. Most institutions do not report their stewardship activities in a systematic way, and disclosures on voting and engagement are widely criticized as pro forma. The code itself has also not been amended once since it was first drafted, meaning it no longer reflects the changed environment in which it operates.

By contrast, the UK, which, in the wake of the 2008 global financial crisis, became the first country in the world to adopt a stewardship code in 2010 and has since helped to spread the model globally, has taken a very different approach. 

On April 13, the Hankyoreh sat down with Maureen Beresford, the director of corporate governance and stewardship at the UK Financial Reporting Council (FRC), the body that sets the UK Stewardship Code and oversees its application, in Seoul’s Jung District, to hear how the scheme works in practice. Beresford was in Seoul to speak at the International Corporate Governance Network conference held at the Korea Exchange in Yeouido on April 14.

The FRC is an independent public regulator that sets and oversees standards for audit, accounting, corporate governance and stewardship in the UK. The UK Stewardship Code was first published in 2010 and has since been revised in 2012, 2019 and most recently in 2025, with the new version now applying to reports assessed this year. 

In her interview with the Hankyoreh, Beresford highlighted five core messages:

1. Annual reassessment and market discipline

All signatories to the code must submit a stewardship report every year and undergo an annual reassessment of their status. Depending on the outcome, they are either included on or removed from the official list of signatories. The FRC does not disclose who has failed to meet standards, but institutions that do not make the list risk losing mandates from pension funds and other asset owners. The register has therefore created a powerful market-based incentive — and de facto sanction — for maintaining high standards.
 
2. From checklists to narrative, outcome-oriented reporting

The FRC places far greater emphasis on the quality of reports than on formal compliance. Assessment is not based on a simple checklist. Instead, signatories are required to provide detailed qualitative reporting, including concrete case studies and evidence of outcomes. Institutions are encouraged to structure reports around their own objectives and narrative — to explain what they did, why they did it, and with what results, rather than merely ticking boxes.

3. Feedback for both successful and unsuccessful applicants

The FRC provides feedback not only to those who fail but also to institutions that pass. Rather than acting primarily through ex post sanctions, the regulator has deliberately chosen to position itself as a supportive resource: it offers pre-application meetings, written and oral feedback, annual review reports, webinars and other forms of guidance so that institutions understand both how they can improve and what “good” looks like.

4. “Appropriate and proportionate” implementation

Beresford repeatedly stresses the importance of an “appropriate and proportionate” framework. The aim is not to impose excessive burdens on all institutions indiscriminately, but to calibrate expectations according to their size, role and circumstances. Static information, such as governance structures and policies, can be reported on a three-year cycle, while activities and outcomes are reported annually. The principles on engagement, escalation and collaboration have been streamlined, and the code clearly distinguishes which principles apply to asset owners, asset managers and service providers such as proxy advisers. The goal is a regime that, without imposing excessive reporting burdens, drives real behavior and meaningful change.

5. ESG as a means to long-term value, not an end in itself

Under the 2025 revision, the definition of stewardship has been recast so that environmental, social and governance (ESG) factors are treated as tools for achieving long-term sustainable value, rather than as ends in themselves. The code no longer implies that every investor must always deliver explicit benefits to “the economy, the environment and society.” Instead, it focuses on responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries, with ESG being one of several considerations. This gives institutions more room to choose ESG strategies that genuinely fit their clients’ and beneficiaries’ interests.

The following interview has been edited for length and clarity. 

Hankyoreh: Unlike Korea, the UK appears to have the FRC systematically handling everything from drafting the UK Stewardship Code to registration and monitoring. How does the system work in practice?

Beresford: The starting point for stewardship in the UK is the code itself. It is a principles-based, fairly flexible framework, and we see that flexibility as very important. On the implementation side, our priorities are, first, to ensure that the framework is appropriate and proportionate, and second, to make sure that all stakeholders clearly understand the objectives of the code. The core mechanism is the assessment of applicants. Asset owners such as pension funds, asset managers and service providers like proxy advisers apply to become signatories. We read their reports against the principles of the code. Not everyone makes it onto the list — some organizations do fail.

Hankyoreh: How does the application process work?

Beresford: There are two application windows each year, in April and October. Decisions — pass or fail — are usually published around three months later. If an institution fails in April, it can apply again in October. The key point is that all signatories must submit a report on their activities and outcomes for the previous year and have their signatory status reassessed annually.

This year is a transitional year, as we move from the old code to the new one. For that reason, we have made an exception: no one will be removed from the register this year. We want everyone to try reporting under the new framework.

Hankyoreh: Roughly what proportion of applicants fail?

Beresford: In the early years, quite a lot of organizations did not meet the standard. Now it is only a small number each year. Institutions have learned what we are looking for and can draw on the guidance and examples we publish. But the risk of being removed is very real. Even if you have been on the register for four consecutive years, if you do not demonstrate improvement each year, you can be removed.

Hankyoreh: Do you disclose both the successful and unsuccessful applicants?

Beresford: Publicly, we only release the list of successful signatories. If an institution fails, we inform them privately by letter. The media would like us to release more details, but we do not do that.

Hankyoreh: How do you actually review the content of stewardship reports?

Beresford: We read reports against all the principles of the code. It is not a matter of ticking boxes on a checklist. Applicants must describe their activities and outcomes over the previous year. That means the content changes every year. They have to provide concrete examples and case studies to show that they have met the principles.

The assessment is therefore highly qualitative. It is not just Yes/No. Institutions need to explain what they did, why they did it, how they did it, who they worked with, and what results they achieved. In addition, we ask for static information such as the organization’s objectives and stewardship policies. That allows us to check whether their reported activities are genuinely aligned with their stated objectives as stewards.

Hankyoreh: How many people at the FRC are involved in this work?

Beresford: We have a team of about 15 people. We typically receive around 200 applications in April and 100 in October — roughly 300 a year. The process is very intensive.  They go through each principle and verify whether the disclosure meets the standard or not.”

Hankyoreh: What do you mean by an “appropriate and proportionate” implementation framework? In the latest revision, you have, for example, streamlined reporting by separating different types of information, integrated escalation and collaboration into the engagement principle, and differentiated expectations according to institutions’ size and role.

Beresford: That is right. It is important not to place excessive burdens on investors. There are limits to what they can reasonably report, and some information is commercially sensitive. Not every issue produces a tangible outcome every year. It would be unrealistic to demand a specific outcome on every issue in every reporting cycle.

Hankyoreh: Was that also the main rationale for the 2025 revision of the Stewardship Code?

Beresford: Yes. During the consultation on the revision, one of the biggest concerns we heard was: “Why do the reports have to be so long? Can’t you make them more concise?” Over time, reports had become very lengthy — over 100 pages in some cases — and contained far too much information. In reality, no one was reading them apart from us, which was not what we wanted.

So we decided to distinguish between static and dynamic information. Static information includes things like the team responsible for stewardship, governance procedures and diversity and inclusion policies, which do not change very much year on year. Those disclosures now need only be updated every three years. What still has to be reported every year are activities and outcomes. In effect, we have split reporting into two parts.

Hankyoreh: That sounds like a form of streamlining. Why is streamlining so important?

Beresford: For the model to work well, investors need to be able to focus their time on engaging constructively with issues that really matter to their objectives and performance, rather than on filling in checklists. Reports should not be documents produced merely to satisfy the regulator; they should be documents through which investors articulate their own goals and explain how they are pursuing them.

Hankyoreh: Korean financial regulators are also considering stronger post-registration reviews. What advice would you offer for designing an effective framework?

Beresford: The most important thing is for the regulator to be absolutely clear about what it wants to achieve. What outcomes do you want to see, and why are they important? Those objectives then need to be communicated clearly to stakeholders so that everyone understands them.

Next, you have to decide how to assess the reports. Will it be a simple pass/fail, or will you use a graded scale such as 1 to 5? You need a clear assessment framework. At the same time, you must have an audit trail that allows you to trace how each decision was reached. If an organization fails, you need a robust system to demonstrate why that decision was justified. Above all, feedback is essential.

Hankyoreh: How do you provide feedback in practice?

Beresford: We give feedback to all applicants, including those that pass. Otherwise, institutions cannot tell whether they have only just scraped over the line or have performed exceptionally well, and that distinction matters.

When we give negative feedback, we do not simply say, “You failed.” We explain why they failed and which aspects of their reporting were problematic. Some institutions contact us before applying to request a meeting, so that we can clarify our expectations. Overall, our approach is highly two-way. Even though we are a regulator, we prioritize supporting improvement over punishment.

Hankyoreh: In Korea, even if institutional investors implement stewardship diligently, they receive little visible benefit in return for the significant resource costs — staff, research, legal review — that they incur. This tends to create a pattern of rational indifference. What policy tools ensure that UK institutions take reporting seriously?

Beresford: Beyond direct engagement with individual institutions, the structure of the market itself plays a crucial role. Many asset owners prefer to work with asset managers who are on the list of signatories. Asset managers, therefore, know that if they fall off the list, they may lose mandates and fail to win contracts.

For many UK asset owners and managers, being on the FRC register is seen as a signal of good governance, sound stewardship and high transparency. That, in turn, creates a strong incentive to maintain high-quality reporting and robust practices. In that sense, the system has a self-regulating character: the market disciplines behavior through clients’ choices.

Hankyoreh: The UK Stewardship Code has been revised three times. The latest revision is said to reduce reporting burdens while still raising expectations on the quality of reporting. What are the key changes?

Beresford: Two points in particular. First, we have clarified which principles apply to asset owners, which to asset managers and which to service providers such as proxy advisers. Roles and responsibilities are now more clearly delineated than before.

Second, in the past, there were separate principles on engagement, escalation and collaboration. We have now merged these into a single engagement principle. We received feedback that it was not reasonable to expect investors to escalate or collaborate every year. Combining them under one principle makes the framework more proportionate, while still asking for examples where escalation or collaboration has occurred.

Hankyoreh: The Korea Stewardship Code has not been revised since it was introduced in 2016. Current discussions focus on expanding checklists, guidelines and evaluation criteria — a bit like the early phase of the UK Stewardship Code. How does that direction look from the UK’s experience? 

Beresford: To me, it sounds quite different from our approach. Korea seems to be moving towards more of a checklist approach, whereas in the UK, we try to be more flexible and focus on what institutions are actually doing, what impact those actions are having, and why those activities matter to them as organizations.

We want to understand each institution’s objectives — for example, whether they place particular emphasis on climate issues or on board diversity, and why. We also want updates on who they are collaborating with and how that collaboration is progressing. That is why “story” and “examples” are so important in UK reporting.

Hankyoreh: Korea’s National Pension Service entrusts roughly half of its assets to external managers, but is often criticized for not systematically assessing and disclosing those managers’ stewardship performance. Japan’s GPIF, by contrast, evaluates asset managers’ stewardship and reflects the results in mandate allocation. How do UK pension funds approach this?

Beresford: That is a very important question. UK pension funds look at stewardship performance using both quantitative and qualitative criteria. If an asset manager were removed from the FRC list, it would be difficult for pension funds to engage with them in the same way as before.

That is why it is important for asset owners to be actively involved and to focus on governance and alignment of objectives across all organizations they work with. Pension funds need to understand whether their own objectives and those of their managers genuinely match.

Hankyoreh: Why did you change the definition of stewardship in the most recent revision?

Beresford: The latest definition states that “stewardship is the responsible allocation, management and oversight of capital to create long-term sustainable value.” The previous definition said that stewardship creates long-term value for clients and beneficiaries, “leading to sustainable benefits for the economy, the environment and society.” That wording placed more explicit emphasis on climate, environmental and social issues.

In practice, some people interpreted this as meaning that every investor on the list had to actively and directly deliver benefits for the economy, environment and society all the time. Some asset owners even used the code as a negotiating tool, insisting that managers adopt specific ESG positions as a condition of being on the list. That risked turning ESG into an absolute requirement in its own right, rather than one of several factors that can contribute to long-term value.

In reality, it is very hard to deliver explicit, direct benefits across all three of those dimensions in every case. By focusing the new definition on “long-term sustainable value,” we have allowed a little more room for interpretation, without downplaying the importance of ESG. ESG remains important, but we now frame it as one component of long-term performance, not as an end in itself.

Hankyoreh: Japan’s Stewardship Code is in effect led by the public pension fund, GPIF, whereas in the UK, the code is administered by a public regulator like the FRC. What are the pros and cons of a pension-led model versus a regulator-led one?

Beresford: My view is that a regulator is likely to be more independent and objective. We do not have “skin in the game” in the sense of financial outcomes; our role is to set and uphold high standards. Pension funds, by contrast, understandably focus on delivering benefits to their own beneficiaries.

That does not mean a pension-led model is inherently inferior. In some countries, it may be the most effective approach. But whoever runs the code must think about the full diversity of investors and their objectives, and about the level of transparency needed across the entire market, not just in relation to organizations that a particular pension fund happens to work with.

Hankyoreh: Korea faces a structural issue: many asset managers are subsidiaries of large industrial conglomerates. They are reluctant to engage robustly with companies within their own group, or sometimes even with other chaebol groups, which creates serious constraints on stewardship.

Beresford: In the UK we have a small number of groups that are both issuers and investors. In those cases, we ask them to clearly separate their disclosures as issuers from their stewardship reporting as investors. Defining and maintaining that boundary is important, although it is not an easy task in practice. From what you describe, this sounds like a very specific structural challenge in Korea, and I do not pretend to have an easy solution.

Hankyoreh: Finally, since the introduction and successive revisions of the UK Stewardship Code, what visible changes or improvements have you seen in the UK capital market?

Beresford: The biggest change, I think, is that stewardship is now recognized, both in the UK and internationally, as an important part of the investment value chain. We have clearly raised standards for stewardship and for transparency.

Changes within investing institutions themselves are also important. The 2019 Code, in particular, placed much more emphasis on internal governance structures, sign-off processes and clear objective-setting. Many asset owners and managers have told us that they had to put in place policies and practices that they did not previously have. That is a significant development. As asset owners have become more transparent about their objectives for beneficiaries and clients, they have been better able to articulate what they expect from external managers. That has helped to improve the relationship between asset owners and asset managers.

We have also created a system with a degree of jeopardy; there is a real possibility of being removed from the register. It does not have the force of law, but it introduces a useful level of tension. Overall, I believe the various iterations of the code have had a positive impact on the UK market, even though engagement remains challenging for both issuers and investors.

By Lee Bong-hyun, research fellow at the Hankyoreh Economy and Society Research Institute’s ESG Center

Please direct questions or comments to [english@hani.co.kr]