2022 Benchmark Policy Consultation

To ensure its voting policies take into consideration the perspectives of the corporate governance community and the views of its institutional clients, ISS gathers broad input each year from institutional investors, issuers, and other market constituents through a variety of channels and mediums.

Following the release of its Global Benchmark Policy Survey and Climate Survey results, ISS is making available for public comment 16 discrete voting policies applicable for shareholder meetings occurring on or after Feb. 1, 2022. The policy comment period closes on Nov 16 at 5pm ET.

Through the comment period, ISS is requesting feedback from all interested market constituents on 16 proposed new policies or potential policy changes, including:

• Climate Climate change and climate-related risks are now among the most critical topics for many investors. Proposed ISS Benchmark policy changes for 2022 include the assessment of and focus on the world’s highest greenhouse gas (GHG) emitting companies, and adding policy provisions for so-called “say on climate” votes. A new climate-related board accountability policy is proposed in several major markets, based on expectations from many investors that high emitting companies should assess, mitigate, and report on their climate change risks and targets. For ISS’ Benchmark policies for those markets, changes are proposed that will provide for recommendations to vote against the re-election of relevant directors (or other appropriate voting items) at high emitting companies if appropriate climate-related disclosures, such as those according to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), have not been made, or the company has not set quantitative GHG reduction targets. In all markets, additional information will be provided in ISS’ Benchmark reports on high emitting companies’ climate-related disclosures and GHG reduction targets. With the growing numbers of management proposals seeking shareholder approval of climate transition plans, and of shareholder proposals requesting climate reporting and, often, regular shareholder votes on companies’ climate transition plans and progress, ISS is also proposing new policies codifying its analytical frameworks for these items for 2022. For company climate transition plans presented for shareholder approval, the completeness and rigor of the plans will be assessed case-by-case, including considering the quality of disclosures, the rigor of targets, whether targets are science-based, the existence of external verification, and a range of other information. For shareholder proposals requesting “say on climate” votes or other climate-related actions, under the new proposed policy ISS will analyze each on a case-by-case basis, taking into account the details of the request and the company’s current climate-related disclosures and performance.
• Board Diversity ISS is proposing expanding the coverage of its board diversity policies with regard to both gender and ethnicity. In Canada, the policy extension proposed will require at least one woman on the board of most listed Canadian companies for 2022, with at least 30 percent women on the board for large Canadian companies already having been announced in 2020. Proposed U.S. and Japan policy changes will also extend board gender diversity requirements to a larger universe of companies in each market from 2023 following a one year grace period. Proposed changes to the U.K. & Ireland policy will phase in the expectation that FTSE 100 boards will have at least one director from an ethnic minority background from 2022, extending to most other U.K. companies by 2024. Other ISS board diversity policies previously announced in 2020 that will take effect in 2022 include the expectations that large companies in the U.S. will have at least one racially/ethnically diverse director, and in Latin America that companies have at least one woman on the board.
• Board Accountability When ISS implemented its original U.S. policy on unequal voting rights in 2015, the focus was on addressing investor concerns with newly-public companies that adopted unequal voting rights without a sunset mechanism. Therefore, companies with an unequal voting rights structure whose first public shareholder meeting was prior to 2015 were exempted from the new policy. ISS is now proposing to remove the differential policy application that arose from that grandfathering and after a year’s grace period in 2022, to begin in 2023 recommending against the responsible director/s at all U.S. companies with unequal voting rights.
• Compensation Aligning with recommendations from the Canadian Coalition for Good Governance, a change is proposed for the Canadian Benchmark policy to raise the minimum support threshold that triggers a responsiveness analysis on a company’s Management Say on Pay proposal, from 70 support to 80 percent support.

In Europe, in response to changes in regulation as part of SRD II, many EU companies have included broad language allowing derogations (deviations) from their stated remuneration policies without clear definitions and limits about when the derogations may apply. A policy change is proposed for ISS’ Continental European policy to take into account the extent to which a company provides sufficiently clear limits to its derogation policy. Also, non-financial ESG-related metrics are now seen more frequently in compensation plans, and changes are proposed to the Continental European and the U.K. & Ireland benchmark policies to add language clarifying that the relevance and stringency of non-financial ESG metrics in compensation plans will be assessed similarly to financial metrics.