October 4, 2021

ISS Climate Survey Results: Investors Split on “Say-on-Climate” Shareholder Proposals?

As I blogged a few months ago on our Proxy Season Blog, this year ISS also conducted a separate policy survey about climate-related matters. The proxy advisor announced the results of that survey on Friday as well. 164 investors responded, along with 152 companies, advisors and affiliates. Here are the takeaways:

1. Climate-Related Board Accountability: A significant majority of all categories of respondents expect a company that is considered to be a strong contributor to climate change to be providing clear and detailed disclosure, such as according to the Task Force on Climate-related Financial Disclosures. A smaller majority of investor respondents support all of the criteria listed except “medium-term Scope 1 & 2 targets” and “starting to show a declining trend in absolute GHG emissions.”

Other than detailed disclosure, the other criteria that were popular among investors were demonstrating improvement in disclosure and performance, declaring a long-term ambition to be in line with Paris Agreement goals, disclosing a strategy and capital expenditure program in line with Paris goals, and showing that its corporate and trade association lobbying activities are in line with Paris goals.

The comments by investors were strongly supportive of companies’ setting goals in line with the more stringent 1.5 degrees of warming limit than the “well below 2 degrees” target that was in the Paris Agreement as it was adopted in 2016. Corporate responders also were strongly supportive of disclosure and demonstrating improvement, although support drops precipitously for ambition and targets in line with Paris goals.

2. Easier Expectations for Some Companies: Regarding the question about whether companies not deemed to be strongly contributing to climate change should be held to similar standards as those that do, one-third of investor respondents and a majority of non-profit respondents preferred to see minimum expectations the same regardless of company contribution to climate change, but the most common response by investors and corporate responders was that there should be some level of expectations but that they should be lower.

3. Say-on-Climate – Management Proposals: As ISS looks to further develop its framework for analyzing climate transition plans presented by companies, the dealbreakers indicated by investor respondents were similar to the responses about board climate accountability. The top five dealbreakers for investor respondents were a lack of the following: detailed disclosures (such as according to the TCFD framework), a long-term ambition to be aligned with Paris-type goals, a strategy and capital expenditure program, reporting on lobbying aligned with Paris goals, and a trend of improvement on climate-related disclosures and performance.

4. Climate Transition Plans – Vote Targeting: The highest numbers of both investors and non-investors who responded answered that, when a climate transition plan is on the ballot, they considered that the plan is the primary place to vote to express sentiment about the adequacy of climate risk mitigation but that escalation to votes against directors may be warranted in future years if there is multi-year dissatisfaction.

5. Say-on-Climate – Shareholder Proposals: Responses to the question about when Say-on-Climate shareholder proposals requesting a regular advisory vote on a company’s climate transition plan would warrant shareholder support, the answers reflected a split in sentiment. The answer with the highest support from investors was “Always: even if the board is managing climate risk effectively, a shareholder vote tests the efficacy of the company’s approach and promotes positive dialogue between the company and its shareholders.”

However, just a little below that for investors but the most frequent response from corporate respondents was that it should be case-specific and would be warranted only when the company’s climate transition plan or reporting fell short. Fourteen percent of investor respondents answered such a proposal never warranted support and preferred voting directly against directors if the company was not adequately managing climate risk. Just over thirty percent of corporate respondents answered that a shareholder Say on Climate was never warranted because it was a matter for the company to decide.

This was a global survey – 18% of the responding investors were US-based. As I’ve blogged, US-based investors seem less gung-ho about shareholder say-on-climate proposals, due to a concern that these proposals will insulate directors and slow down change. Geography may be driving some of the split on that question, but the survey doesn’t delve into that level of detail.

The survey also includes responses that affect ISS’s specialty climate voting policy. There appears to be consensus that high-impact companies should be subject to more stringent evaluations. Most respondents favored the policy assessing a company’s alignment with net zero goals.

Liz Dunshee