ISS Proxy Guidance Updates: Climate Change, CEO Pay, Political Contributions, Diversity, “Problematic Governance”

Each year, Institutional Shareholder Services updates its proxy voting policies based on feedback from its clients and current developments. Highlights from the updates for US companies in 2023 (emphasis added in italics).

Climate Accountability

For 2023, for high emitting companies – identified as those in the Climate Action 100+ Focus Group – ISS is extending the framework for all applicable markets and updating the factors considered under the policy as follows. In cases where a company in the universe is not considered to be adequately disclosing climate risk disclosure information, such as according to the Task Force on Climate-related Financial Disclosures (TCFD), and does not have either medium-term GHG emission reductions targets or Net Zero-by-2050 GHG reduction targets for at least a company’s operations (Scope 1) and electricity use (Scope 2), ISS will generally recommend voting against what are considered to be the appropriate director(s) and/or other voting items available. Emission reduction targets should cover the vast majority (95%) of the company’s operational (Scope 1 & 2) emissions. For 2023, ISS plans to use the same analysis framework for all Climate Action 100+ Focus Group companies globally but with differentiated implementation of any negative vote recommendations depending on relevant market and company factors (for example, voting item availability). Additional data and information will be included in the company information section of the ISS research reports for all Climate Action 100+ Focus Group companies in order to support this extended policy application.

Gender Diversity
In 2021, the U.S. board gender diversity policy was extended to all U.S. companies covered under U.S. policy after a one-year grace period. The policy will go into effect 2023, so transition language will be removed. The board gender diversity policy for Foreign Private Issuers (FPIs) previously applicable only to Russell 3000 and S&P 1500 FPIs will also be expanded to all FPIs from 2023.

Unequal Voting Rights
The previous grandfathering of older companies with unequal voting rights will be removed in 2023. As part of this update, a de minimis exception has been defined as no more than 5 percent of total voting power.

Problematic Governance Structures
For the U.S. policy on companies that go public with other problematic governance structures (including classified boards and supermajority vote requirements), a “reasonable sunset period” to fully eliminate the provision is being defined as no more than 7 years from the date of going public.

Political Expenditures Alignment Transparency Shareholder Proposals
A new specific policy is being introduced for shareholder proposals requesting company transparency on the congruency of its political contributions and lobbying with its public commitments and policies, including climate lobbying congruency to its climate goals. The new policy will provide more transparency to the market about how such shareholder proposals are assessed and codify the case-by-case approach used in the 2022 proxy season.

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