Results of ISS’ recently published annual benchmark policy survey focused on climate change risk management and disclosures

The influential proxy advisory firm, Institutional Shareholder Services (“ISS”), has released the results of it’s the annual Global Benchmark Policy Survey.  The survey is used as part of ISS’ process for implementing possible policy changes and the results of the survey indicate that climate change risk remains a dominant concern for investors and non-investors alike.

Of the 417 respondents, half were institutional investors and their affiliated organisations (an increase of 29% from last year) and the other half were non-institutional investor market constituents, including public companies and corporate directors.  The majority of respondents in both categories represented organisations that either covered global markets (including the US, Canada, Europe, and the UK and Ireland) or had the US as their primary market of focus.

The key findings of the survey were as follows:

• A significant majority of respondents would consider there to be a “material governance failure” if a company does not provide adequate disclosure with regards to climate-related oversight, strategy, risks and targets according to a recognised climate disclosure framework.
  
  
• In relation to management say-on-climate proposals, the majority of investor respondents  stated their top priorities were: (i) whether adequately comprehensive and realistic medium-term targets for reducing operational and supply chain emissions to net zero by 2050 have been set; (ii) whether short-term and medium-term capital expenditures align with long-term company strategy and if the technical and financial assumptions underpinning strategic plans have been disclosed; and (iii) the extent to which climate related disclosures are in line with TCFD recommendations and other market standards.
  
  
• Some investor respondents questioned the appropriateness of submitting management say-on-climate proposals, stating they believed the proposals improperly shift the responsibility for a company’s climate transition plan away from the board and management to shareholders.
  
  
• A substantial majority of investors were in favour of seeing auditors comment on climate-related risks for significant emitters, however several respondents raised concerns around whether auditors currently have the expertise to accurately gauge these risks.
  
  
• Half of investor respondents said that large companies in the banking and insurance sectors should: (i) fully disclose their financed emissions, (ii) have clear long-term and intermediary financed emissions reduction targets for high emitting sectors; (iii) have a net-zero by 2050 ambition; and (iv) publicly commit to disclose financed emissions by joining a collaborative group e.g. PCAF and/or GFANZ.  Around 30% of investor respondents also voiced support for large companies in the banking and insurance sectors committing to cease financing for new fossil fuel projects.

Although investors appear more willing to take a firmer stance against companies who fail to properly implement corporate transition plans and assess their climate risk than non-investors, both groups of respondents indicate that they are willing to become more vocal in requiring companies to address their ESG concerns and companies should prepare for their stakeholders to exert increasing pressure on them in regards to these points.