One of the world’s leading shareholder advisory firms is calling on major financial investors to move against company board members that don’t address climate change.
Institutional Shareholder Services (ISS), which advises some of the world’s biggest investment managers, has updated its proxy voting policy*.
ISS will now be able to recommend that investors vote against directors when “material failures … including demonstrated degradation in environmental and social risks, including climate change” are present.
As of February 1, 2021, the policy shift will influence 44,000 company reports ISS produces each year.
ISS reports are used by major asset managers, including Blackrock, HSBC, and Schroders, to support their voting decisions at annual shareholder meetings.
Investors say climate change is a systemic risk
Other major investors are putting pressure on companies to step up and address climate change and global warming.
Federated Hermes – which manages £453bn in assets – announced in November 2020 that it would begin voting against the chairs of companies that are “materially out of line” with the commitments of the Paris Agreement.
Tim Goodman, a director at EOS, the stewardship arm of Federated Hermes, told The Guardian newspaper: “Climate change is a systemic risk, and as such the directors of companies have a responsibility to mitigate rather than exacerbate that risk. As we enter AGM season, we’ll be looking closely to ensure the chair and responsible directors of companies fully grasp this reality. We will recommend voting against board members if they fail in that responsibility.”
What is proxy voting?
Proxy voting is a key right of asset owners – an opportunity to participate in strategic decisions. These rights have increasingly been outsourced by asset owners to asset managers, who are typically advised by proxy advisors. These advisors advise institutional investors on how to vote during shareholder meetings.