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Last week, ISS announced the results of its 2022 benchmark policy survey. ISS received responses to the survey from 205 investors – 29% more than last year – as well as 202 companies and corporate organizations.

The results will be used to formulate the proxy advisor’s voting policies, which will be released in draft form in November and finalized in December. Here are some key climate-related takeaways:

Board Accountability on Climate Risk: ISS asked what climate actions/non-actions from Climate Action 100+ “significant emitters” would constitute a “Material Governance Failure” that would call for an ISS recommendation against a director.

– A significant majority of both investor and non-investor categories of respondents expressed that they would consider there to be a material governance failure if a company that is considered to be a significant contributor to climate change is not providing adequate disclosure with regards to climate-related oversight, strategy, risks and targets according to a framework such the one developed by the Task Force on Climate-related Financial Disclosures (TCFD).

– Investor respondents generally agreed that the boards of companies that are large greenhouse gas (GHG) emitters are failing if they do not take steps to address emissions, but support for different actions that could be taken to address emissions varied. Besides a company failing to provide adequate disclosure according to a recognized framework, the three most common choices by investor respondents as demonstrating failures were targets-related, and were (i) a company not setting realistic medium-term targets (through 2035) for Scope 1 & 2 only (50% of investors), (ii) not declaring a net-zero by 2050 ambition (47% of investors), and (iii) not setting realistic medium-term targets (through 2035) for Scope 1, 2 & 3 if Scope 3 is relevant (45% of investors). A strong majority of investor respondents (69 percent) chose at least one of those “targets” responses, which was also the case for 43 percent of the non-investor respondents.

Management Say-on-Pay Proposals: When asked “What do you consider to be the top three priorities when determining if a company’s transition plan is adequate?”, the most popular responses among investor respondents were:

(i) whether the company has set adequately comprehensive and realistic medium-term targets for reducing operational and supply chain emissions (Scopes 1, 2 & 3) to net zero by 2050 (42 percent),

(ii) whether the company’s short- and medium-term capital expenditures align with long-term company strategy and the company has disclosed the technical and financial assumptions underpinning its strategic plans (41 percent),

(iii) and the extent to which the company’s climate-related disclosures are in line with TCFD recommendations and meet other market standards (38 percent).

The appropriateness of submitting management say-on-climate plans for shareholder approval was questioned by some investor respondents who believe these proposals improperly shift the responsibility for a company’s climate transition plan away from the board and management toward its shareholders.

Climate Risk as Critical Audit Matter: A substantial majority of investor respondents (75 percent) favored seeing commentary by auditors in the audit report on climate-related risks for significant emitters. A smaller majority (64 percent) of investor respondents supported climate-related risks being included by auditors in Critical Audit Matters / Key Audit Matters (CAMs).

– A majority of investor respondents (52 percent) would favor supporting a related shareholder proposal on this issue. Voting against the re-election of audit committee members and voting against the re-appointment of auditors got somewhat lower support (42 percent and 35 percent respectively).

– In comments, several respondents – including both those who favored and opposed the inclusion of climate risks – raised the question of whether auditors currently have the expertise to accurately gauge these risks. Others wrote that this issue is currently not a market norm but may develop quickly due to regulatory requirements that are being finalized in the U.S. and EU and as the International Sustainability Standards Board (ISSB) develops its sustainability standards. Non-investor respondents tended to not support seeing auditors comment on climate-related risk.

Financed Emissions: During the 2022 proxy season, a number of shareholder proposals were filed that asked companies to restrict their financing or underwriting for new oil and gas development in line with the assumptions in the International Energy Administration’s Net Zero 2050 Scenario, which prompted us to ask a question about expectations on climate-related disclosure and performance of financial institutions.

– Around half of investor respondents said that in 2023 large companies in the banking and insurance sectors should fully disclose their financed emissions (54 percent), have clear long-term and intermediary financed emissions reduction targets for high emitting sectors (51 percent), have a net-zero by 2050 ambition including financed portfolio emissions (49 percent), or should publicly commit to disclose financed emissions at some point in the future by joining a collaborative group such as the Partnership for Carbon Accounting Financials (PCAF) and/or the Glasgow Financial Alliance for Net Zero (GFANZ) (45 percent).

– Around 30 percent of investor respondents voiced support for these companies committing to cease financing for new fossil fuel projects.

Most survey respondents also predict that investors’ expectations for climate disclosure and performance will increase over time – with heightened focus on net-zero targets, comparable climate disclosures, greater Scope 3 disclosures and more interest in corporate investment in low-carbon products and strategies.

– Liz Dunshee