Evolving stakeholder expectations on climate disclosures and governance: ISS 2021 Global Policy Survey

Last month, Institutional Investor Services (ISS) released the results of a Global Policy Development Process Survey on Climate and a Global Benchmark Policy Survey conducted between 28 July 2021 and 27 August 2021. 

For companies throughout APAC, the surveys illuminated the evolving expectations of institutional investors globally with respect to expectations regarding climate disclosures and initiatives, and governance expectations regarding the use of ESG metrics in compensation and virtual only meetings.

The Climate Survey results can be viewed here and the full Benchmark Policy Survey can be viewed here

Climate survey questions included views on climate related board accountability and the minimum criteria for boards overseeing climate related risks, the importance of net zero goals, views on climate transition plans, and a minimum level of expectations for companies regardless of their contribution to climate change initiatives.

A majority of investor respondents expected that companies demonstrate and execute on being strong contributors to climate change initiatives. 88% of investor respondents indicated that it is a minimum expectation that companies provide clear and detailed disclosure to initiatives such as the Task Force on Climate-related Financials Disclosures (TCFD) framework. Furthermore, 66% of investor respondents indicated their minimum expectation that a company demonstrates it is improving its disclosures and performance, even if it is not yet in line with peers or with Paris Agreement goals.

Regarding Net Zero goals, 86% of investor respondents indicated they are in favour of ISS Specialty Climate Policy assessing a company’s alignment with Net Zero goals. Regarding the criteria for assessing Net Zero goals, most investor respondents said it was extremely important to include the following: Net Zero ambitions, GHG emissions reduction targets, capital expenditure in line with GHG reduction targets, board oversight, discourse regarding the impact of transition planning on workers and communities and lobbying disclosure.

The benchmark survey included questions relating to the use of measurable ESG metrics in executive compensation, and virtual only meetings, and whether the practice restricts shareholder rights and participation.

Respondents indicated that there continues to be increased interest in environmental, social, and governance (ESG) metrics in executive compensation.  However, there continues to be a focus on ensuring that ESG metrics are properly defined and measured.  52% of respondents agreed that ESG metrics should be used in executive compensation programs if the metrics selected are specific and measurable and their associated targets are communicated to the market transparently.

Regarding virtual only meetings, 90% of investor respondents indicated that they were concerned that virtual meetings could be allowing management to unreasonably curate questions, the inability to ask live questions, and the lack of Q&A opportunities. 85% of investor respondents were concerned by the inability of a shareholder proponent to present and explain a shareholder proposal considered at the meeting. In light of these issues, 38% of investor respondents indicated that virtual-only meeting practices that restrict shareholder rights and participation constitute a material governance failure and that adverse votes against the chair of the board may be warranted in such situations.