Capital markets regulator Sebi on Tuesday asked institutional investors like banks, insurance companies and pension funds to follow ‘transparent’ Stewardship Code in order to be truly accountable to their clients and beneficiaries.
The institutional investors should act as a counter force to any unwanted decision being pushed in the board which may not be in the interest of all stakeholders, Sebi chairman Ajay Tyagi said at a virtual event organised by industry chamber CII on corporate governance.
Stewardship Code is a principles-based framework that assists institutional investors in fulfilling their responsibilities to help them protect and enhance the value of their clients and beneficiaries.
Sebi, in December 2019, prescribed the Stewardship Code for all mutual funds and all categories of alternative investment funds (AIFs) in relation to their investments in listed equities. This code became applicable from July 1, 2020.
In order to further improve transparency, the Securities and Exchange Board of India (Sebi) has recently mandated mutual funds to cast votes compulsorily in respect of company resolutions on some specified matters.
“I would strongly urge the other institutional participants in corporates such as banks, insurance companies and pension funds to also follow transparent Stewardship Code so as to be truly accountable to their clients / beneficiaries,” Tyagi said.
He, further, said worldwide institutional investors in capital markets are expected to shoulder greater responsibility towards their clients or beneficiaries.
According to him, meaningful engagement with the investee companies including their credible monitoring, commonly referred to as stewardship responsibilities, is all the more important in the Indian context where there are concentrated ownerships and the non-institutional investors may lack awareness.
Institutional Investors need to formulate comprehensive policy on the discharge of their stewardship responsibilities, publicly disclose it, and review the same periodically, Sebi chief said.
Adherence to the code by institutional investors will enhance the corporate governance of the investee companies.
Stewardship obligations are becoming more important due to increased institutional investor ownership of various companies and a large portion of such institutional investors, directly or indirectly, represent public funds.