Will Proxy Advisors Support 2022 E&S Shareholder Proposals for Enhanced Disclosures?

Written By Vini Oliveira, Senior Director & Delphine Robert, Senior Consultant

February 2, 2022

New Policy Guidelines Signal What to Expect

Environmental and social (E&S) shareholder proposals have evolved significantly over the last decade. Instead of generic requests for disclosure (i.e., publish a sustainability report), investors now file resolutions as part of a coordinated campaign. This is particularly true when it comes to climate-related disclosure, such as say-on-climate proposals, which require annual emissions disclosure. But social topics are being raised as well including Board and executive diversity and data privacy protections and breaches.

ISS and Glass Lewis don’t always see eye to eye.

In response to the growing number of proposals, the two leading independent, third-party proxy advisory firms—Institutional Shareholder Services (ISS) and Glass Lewis—have recently created new policy guidelines to evaluate if they will support such resolutions. Surprisingly, the two firms aren’t as aligned as expected. While both firms seem to agree on the need for Board oversight of important environmental and social issues, expect ISS to throw their support more on measures regarding comprehensive E&S disclosures in 2022, while Glass Lewis is expected to give management teams a wider berth.

Give key ESG disclosure topics careful consideration.

With so many perspectives at play, public companies will need to carefully consider inputs from all these entities ahead of preparing and filing their 2022 proxy materials. To help you get started, we’ve provided an overview, broken down by ESG disclosure topic area, with highlights from each of the key players along with our recommendations for your best next steps.

Climate and Net Zero Strategy

In 2021, Say on Climate shareholder proposals appeared on the annual meeting ballots of three different S&P 500 companies. This type of resolution typically seeks disclosure on the company’s strategy toward a net zero transition and emission data and asks for alignment with the Task Force on Carbon-Related Financial Disclosure (TCFD). On average, these proposals received support from 36% of shareholders, providing the impetus for ISS and Glass Lewis to disclose a more standard voting policy on these proposals.

What to Expect from ISS What to Expect from Glass Lewis
Tactical support for the coalescing of climate standards around the TCFD framework General leaning toward management
Evaluation of Say on Climate management and shareholder proposals “on a case-by-case basis” Adverse recommendations for Say on Climate proposals submitted by shareholders
Scrutiny of a company’s data points on climate, along with a review of data disclosed by peers, to determine
if a proposal will receive support
Evaluation of management resolutions on a case-by-case basis
Support for resolutions at companies considered laggards on environmental disclosure

Board Oversight on E&S

Explicit oversight by the Board on material environmental and social issues is quickly becoming the standard across the public company universe. Stakeholders seek to link environmental-related proposals and director election proposals, voting against directors and committee chairs that they believe should be held accountable for perceived governance failures on the topic.

What to Expect from ISS   What to Expect from Glass Lewis
A new climate board accountability policy for evaluating board oversight of climate risk specifically aimed at companies on the Climate Action 100+ list that:

Do not disclose climate risks and opportunities in line with the TCFD framework

-Do not have quantitative greenhouse gas disclosures and targets covering a significant portion of their activities

Adverse vote recommendations for S&P 500 companies where E&S oversight is not explicitly stated in a governing document

For Russell 1000 companies, notes indicating concern when disclosure is unclear

Diversity

Human Capital Management (HCM) has become an increasingly important ESG topic. Diversity—board diversity in particular—is a big part of this issue. Investors want assurance that companies’ boards are representative of their workforce and their customer base, and imposing diversity requirements for the board are one way to meet that objective. Many companies are already taking the initiative to meet new standards: in 2021, 54% of the Russell (ex S&P 500) had a diverse board under ISS’ criteria. In January 2022, that number increased to 80%.

What to Expect from ISSWhat to Expect from Glass Lewis
A new racial and ethnic board diversity policy to take effect in 2022New requirements for Russell 3000 firms to appoint two women to the board in 2022 and to increase female board representation to 30% by 2023
Votes against the nominating committee chair at companies whose boards have no apparent racially or ethnically diverse membersPotential adverse votes if director diversity and skills information disclosure are poor
 Increased pressure to disclose aggregate gender and ethnic diversity stats on board members

Governance

In general, investors are pushing for better governance, and proxy advisors are updating their policies accordingly.

What to Expect from ISSWhat to Expect from Glass Lewis 
A new, more forceful approach concerning fundamental corporate governance issues such as unequal voting rightsMore scrutiny on the rationale for the selection of E&S metrics in compensation plans
Elimination of long grace periods to remove dual stock class structuresAdditional evaluation of the robustness of targets for non-financial E&S metrics
Requirement to adopt a sunset provision within one year OR to remove unequal voting rights structures immediately (exceptions may be granted when shares with unequal voting rights make up a relatively insignificant portion of the vote outcome) 
A return to pre-pandemic executive compensation approach focused on regular compensation structure and alignment of pay and performance 
Elimination of special waivers given to in-flight changes in remunerations in 2020 and 2021 

Make the right disclosure decisions for your business.

This proxy season, it seems there’s more to consider than ever before when it comes to what and how much to disclose. Starting your to-do list now and launching a review of the above critical ESG topics is a great way to start preparing for any expanded disclosures you may need to make. At a minimum, we recommend preparing an overall ESG summary for your 10-K, which is a great place to communicate your company’s ESG principals and strategy and to highlight numbers from key programs and initiatives.

If you need help determining and pulling together the appropriate disclosures and filings or engaging with your shareholders in advance of your upcoming annual meeting, reach out. We’re here to make sure all your investor communications send the right message and give your shareholders the information they need to confidently invest in your organization.

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