Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

ISS has released updates to its 2022 ISS benchmark proxy voting policies. The updated policies will generally be applied for shareholder meetings taking place on or after Feb. 1, 2022, except for those updates that are being announced now with a one-year transition period and which will become effective in 2023.

Say on Climate (SoC) Management Proposals

ISS is codifying the framework developed over the last year for analyzing management-offered climate transition plans put up for shareholder approval, incorporating feedback received during this year’s policy development process including from the Climate Survey. For transparency, the policy lists the main criteria that will be considered when analyzing these plans (a non-exhaustive list).

Say on Climate (SoC) Shareholder Proposals

“Say-on Climate” shareholder proposals emerged late in 2020 and increased in 2021, generally asking companies to publish a climate action plan and to put it to a regular shareholder vote. This policy establishes a case-by-case approach toward such proposals and provides a transparent framework of analysis that will allow for consistency of assessment across markets.

Gender Diversity

ISS adopted a U.S. board gender diversity policy in 2019, which went into effect in February 2020, for companies in the Russell 3000 or S&P 1500 indices. Based on institutional investor feedback in 2021, after a one-year transition period, the current U.S. board gender diversity policy will be extended to all companies covered under U.S. policy with effect from 2023.

Board Accountability on Climate

Climate change and climate-related risks are now among the most critical topics for many investors, and this area has developed significantly in the last year. Many investors around the world are seeking to better integrate climate risk considerations in their investment, engagement, and voting processes. Scientific experts have stated that there is an imperative to limit cumulative CO2 emissions, aiming to reach net zero CO2 emissions by midcentury, along with strong reductions in other greenhouse gas emissions in order to limit human-induced global warming. The ISS policy updates for 2022 introduce a board accountability policy for the assessment of and focus on the world’s highest greenhouse gas (GHG) emitting companies.

In response to ISS’ 2021 Climate Policy survey, high percentages of investor respondents supported establishing minimum criteria for companies considered to be strongly contributing to climate change. Therefore, ISS is for 2022 focusing on the 167 companies currently identified as the Climate Action 100+ Focus Group, and will recommend against incumbent directors – usually the appropriate committee chair in the first year – in cases where the company does not have both minimum criteria of disclosure such as according to the Task Force on Climate-related Financial Disclosures (TCFD) and quantitative GHG emission reduction targets covering at least a significant portion of the company’s direct emissions.

Unequal Voting Rights

Due to the strong support expressed through the survey results and roundtable discussions, ISS will remove the grandfathering of older companies with unequal voting rights. After a one-year grace period, starting in 2023, ISS will generally recommend against relevant directors at all companies with unequal voting rights, irrespective of when they first became public companies.

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