The world's largest shareholder advisory firm has said it may "consider" recommending its clients to vote against company board members if they fail to provide adequate oversight of climate and environmental risks, according to its updated its voting guidelines which came into force this month.
Announcing the change to its global proxy voting policy late last week, Institutional Shareholders Services (ISS) confirmed it would "consider recommending a vote" against individual directors for "material failures of governance, stewardship or risk oversight, including demonstrably poor risk of environmental and social issues, including climate change."
The new guidelines, which came into force Feb. 1, will be applied in all markets that ISS operates in, the company said. The firm yields a significant influence at shareholder meetings around the world; it claims to deliver proxy research and vote recommendations at about 44,000 company meetings in 115 countries every year, according to its website, while also casting roughly 10.2 million voting decisions annually on behalf of clients, representing some $4.2 trillion shares.
ISS and its rival Glass Lewis — which together comprise roughly 97 percent of the U.S. proxy advice market — have come under pressure to align their benchmark voting policies with climate science as shareholder action has emerged as critical way to push carbon-intensive companies towards climate action.
It comes as major investors around the world have pledged to leverage their significant clout to push companies towards introducing stricter environmental and climate policies. That includes BlackRock's recent letter urging CEOs to set net zero targets and an ongoing push from U.K. billionaire investor Chris Hohn for company shareholders to demand an annual say on corporate climate plans.
Proxy advisers have significant influence on asset managers' voting behavior and it is long overdue for them to take a stronger position on climate change.
However, ShareAction said the new policy from ISS did not go far enough to tackle climate inaction and urged the influential proxy advisor industry to step up its efforts to steer companies towards a cleaner future.
Wolfgang Kuhn, director of financial sector strategies at the campaign group, said the wording of ISS' new policy remained imprecise. "Proxy advisers have significant influence on asset managers' voting behavior and it is long overdue for them to take a stronger position on climate change," he said. "But there is little to celebrate in this policy. Even where directors exhibit 'demonstrably poor' oversight on climate risks, ISS will only 'consider' recommending a vote against. Contrast this with ISS' position on gender diversity, which states that it will 'generally vote against' the chair of boards with poor gender diversity."
ISS's updated voting policies come several weeks after Glass Lewis set out its own 2021 proxy voting guidelines, which confirmed that from this year the firm would "note as a concern" the absence of clear disclosure of board-level oversight for environmental and social issues for companies on the S&P 500. Beginning in 2022, it said it would escalate this concern by "generally recommending against governance committee chairs for failure to provide disclosure of board-level oversight of these issues" at those companies.
Kuhn also said that proxy advisers too often held a "cozy relationship" with companies affected by shareholder dissent, arguing this was preventing stronger climate action. He claimed ISS had a "conflict of interest in these issues as it receives payments for services from the same companies on which it provides voting recommendations to shareholders."
"The timidity on climate change is disappointing, if unsurprising," he added.