ISS Proposes 2022 Benchmark Updates for Say on Climate, Gender Diversity and Say on Pay – JD Supra

ISS Proposes 2022 Benchmark Updates for Say on Climate, Gender Diversity and Say on Pay JD SupraISS Proposes 2022 Benchmark Updates for Say on Climate, Gender Diversity and Say on Pay JD SupraISS Proposes 2022 Benchmark Updates for Say on Climate, Gender Diversity and Say on Pay JD Supra

Institutional Shareholder Services (ISS), has published proposed updates to its Canadian benchmark proxy voting policies. (each, a “Proposed Policy”) for the 2022 proxy season. The Proposed Policies can be viewed until November 16, 2021. If approved in their current form, they will govern ISS voting recommendations at shareholder meetings of publicly traded Canadian corporations (each, a Proposed Policy) for the 2022 proxy season. Canadian public companies should discuss the proposed updates with their legal counsel in order to determine the potential impact on disclosure and governance practices and what steps can be taken to mitigate adverse voting recommendations from ISS if they are approved.
Say on Climate Management and Shareholder Proposals
ISS noted that there were 25 management-initiated Say on Climate proposals in 2021. One of these was in Canada. The Proposed Policy would codify ISS’s framework for analyzing management SoC proposal and outline ISS’s approach to addressing shareholder SoC requests, perhaps signaling ISS’s expectation that SoC propositions will increase in frequency due to ESG trends in proxy matter matters.
Proposals for Climate Management
ISS proposes to evaluate management-initiated SoC requests relating to shareholder approval for a company’s climate change plan on a case by case basis. It will take into account the completeness of the plan based upon factors such as:
The extent to which climate-related disclosures by the company are in line with Task Force on Climate Related Financial Disclosures (TCFD), and other market standards.
Disclosure of its operational and supply-chain GHG emissions (Scopes 1 and 2;
The company’s ability to meet its short, medium, and long-term goals for reducing GHG emissions from its supply and operational chains in accordance with Paris Agreement goals (Scopes 1, 2, and 3 if applicable).
Whether the company has received approval from a third party that its science-based targets are scientifically based;
Whether the company has committed to being “net-zero” in terms of operational and supply chain emissions (Scopes 1 and 2) by 2050.
Whether the company has made a commitment to report on its plan’s implementation in the subsequent years.
Whether the climate data of the company has been verified by a third party;
Disclosure of how lobbying activities and capital expenditures are aligned with company strategy
Whether there are particular industry decarbonization issues;
The company’s performance, disclosure and commitment to the industry is comparable to that of its peers.
Although the ISS review framework is now more transparent, it will still be difficult for companies to predict the ISS’s voting recommendation with respect to a specific management SoC proposal. Issuers might still want to solicit ISS review before launching an SoC proposal.
Proposals for Climate Shareholders
The Proposed Policy addresses how ISS will vote on shareholder SoC proposals. This includes those that request that a company disclose its GHG emissions and reduction targets or its climate transition plan. According to the Proposed Policy, ISS will consider information such as:
The completeness and rigor with which the company’s climate-related disclosure was made;
The actual GHG emissions performance of the company;
Whether the company has been the target of recent, serious violations, fines or controversy related to GHG emissions;
Whether the request is too broad or too specific.
The framework for shareholder SoC proposals is subject to market practice, just as the ISS framework for management SoC proposal proposals.
Gender Diversity
The Proposed Policy also enhances gender diversity requirements for all issuers within the TSX-listed universe.
It states that ISS will recommend withholding votes (i.e. voting against) the chair or equivalent of the nominating board of S&P/TSX composite index companies if:
Women make up less than 30% of the board of directors.
The company has not made a formal, publicly disclosed written commitment to have at least 30% women on its board by the next AGM.
The Proposed Policy confirms that S&P/TSX Composite Index companies must either meet the 30% representation requirement or make a written commitment prior to their next AGM.
The Proposed Policy states that ISS will recommend that TSX companies not included in the S&P/TSX Composite Index withhold votes for the chair or equivalent of the nominating commission.
The company has not published a formal written policy on gender diversity;
There are no women on this board.
If adopted, the above will be applicable to all TSX companies other than those that are not part of the S&P/TSX Composite Index.
ISS will also assess, case-by-case, whether withhold recommendations for additional directors (other than the chair of a nominating committee) are warranted for companies that have failed to comply with the Proposed Policy for more than two years.
Advisory Vote On Executive Compensation (Say on-Pay) Management Proposals
The Proposed Policy recommends increasing the threshold for triggering a responsiveness analysis on a company’s management Say-on Pay proposal from the current threshold at 70 percent to 80 percent. The Proposed Policy is in line with the Canadian Coalition for Good Governance’s recent recommendation that, if a Say-on Pay vote receives less than 80 percent support from shareholders, the board should report back to them within a reasonable amount of time on its efforts to understand and address shareholder concerns.
ISS notes that Canada’s say-on-pay resolutions receive strong support. The average support level for the past five years has been over 90 percent. The Proposed Policy, if it is approved, is unlikely to have any significant impact on most issuers.

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