Thirty six investors, including a range of pension funds, have called on proxy advisor Institutional Shareholder Services (ISS) to enhance its climate-related guidance, saying they “continue to be concerned about the research and recommendations” from the firm on environmental issues.
Specifically, the investors have called on ISS to provide clients with a “speciality net zero policy” and to further integrate climate into its proxy voting recommendations “on a more robust and consistent basis”.
The asks were formulated in a letter to ISS that was supported by 36 members of the Institutional Investors Group on Climate Change (IIGCC), including asset owners AP2, AP3 and AP7, Danica Pension, P+, Stichting Pensioenfonds IBM Nederland, The People’s Pension and Universities Superannuation Scheme.
Asset managers including AXA Investment Managers, Federated Hermes and PGGM also signed the letter, which was developed by the IIGCC’s proxy advisor working group, chaired by Edward Mason, director of engagement at Generation Investment Management.
In the letter, which coincides with the launch of ISS’s annual benchmark policy survey, the signatories state that they are “keen to work with ISS to develop a policy with explicit links to net zero alignment and robust voting recommendations without delay”.
The investors want a net-zero-specific voting policy to be available before the 2024 proxy season, noting that the creation of such a policy “is about providing individual investors with choices that fit their needs”, the letter said.
“Investors are still waiting for the major proxy advisors to offer advice that properly integrates assessment of companies’ performance on climate change”
Edward Mason, director of engagement at Generation Investment Management
Mason said: “It is now four years since the first investor net zero alliance was established. Nearly 500 investors have made net zero commitments.
“Yet investors are still waiting for the major proxy advisors to offer advice that properly integrates assessment of companies’ performance on climate change. It’s time for that to change.”
Benchmark policy change
The investors also requested ISS step up in relation to its benchmark policy, saying they had “considerable concerns regarding ISS’s pace of change in the face of clear and rapidly building systemic climate risk”.
ISS’s benchmark policy is one of the most widely used voting recommendation services for investors.
Specifically, the signatories said they sought “accelerated progress in 2024 in four areas”.
The first is board accountability, with the investors welcoming an extension of climate board accountability in last year’s ISS policy but saying the approach needed to be bolstered, including by going beyond Climate Action 100+ companies.
In their letter, the investors also requested that ISS outline a clear assessment framework for transition plans in the 2024 benchmark policy to “help reduce the troubling inconsistencies currently seen in vote recommendations on transition plans”.
The signatories also said they were concerned by inconsistencies in ISS’s approach to shareholder resolutions and called for a clearer and more consistent policy.
Lastly, the investors said ISS’s benchmark policy would benefit from further alignment with the Climate Action 100+ net zero company benchmark, including further scrutiny of how climate is integrated into executive remuneration for the network’s focus companies.
As previously stated and reported, ISS has launched a survey on its benchmark policy. This is followed up by a public comment period on any key changes it proposes to make to its voting policies for next year.
A spokesperson for the proxy voting advisor said: “We will review the IIGCC Proxy Advisor Working Group’s comments and requests in due course along with other client and market feedback we receive as part of our structured annual policy development process, and considerations for the continued development of the range of options and information we offer to investors.”
ISS’s benchmark policy survey, which is slated to close on 21 September, includes a set of questions about the assessment of ‘Say on Climate’ plans put forward by companies to their shareholders. For example, ISS is asking investors if they apply a stricter approach for assessing a transition plan that is presented by a company that is in the Climate Action 100+ focus group universe and/or operates in a high impact sector such as energy, utilities or cement.
The survey also asks how investors view various shortcomings in company climate transition plans and what greenhouse gas emission targets, if any, they expect a company’s strategy to include.
IIGCC has more than 400 members. IPE understands that the majority of its proxy advisory working group use ISS, and that the group will continue to engage with other proxy advisors.