ISS announced the results of its annual Benchmark Policy Survey for the 2024 proxy season. There were 455 responses to the benchmark policy survey consisting of 239 responses from investors or investor-affiliated organizations and 216 responses from non-investors, which consisted of public companies, public company board members, public company advisors, and other non-investors, including journalists. The number of respondents varied by question.
The Society submitted a comment letter but did not complete the online survey due largely to the limitations imposed by and concerns about the prepopulated, multiple choice answer selections, which were addressed in the letter.
Key takeaways from the online survey include:
US Market-Specific Question
Non-GAAP Incentive Pay Program Metrics
Survey Question: Should companies disclose a line-item reconciliation of non-GAAP adjustments to incentive pay metrics in the proxy statement?
- More than half of investor respondents indicated that line-item reconciliation should always be disclosed whenever non-GAAP metrics are used, whereas a plurality of non-investor respondents indicated that the disclosure is needed only when the adjustments significantly impact payouts and/or where non-GAAP results significantly differ from GAAP.
Global Governance Question
Director Independence Classification: Professional Services
Survey Question: Assuming full disclosure of relevant information by the company, which of the following best describes your organization's view of professional service relationships involving directors or members of their families? Please select all that apply.
- A majority of investor respondents affirmed ISS's current classification of directors (described on page 14 of the results) as appropriate, whereas a plurality of non-investor respondents said that a director or director's family member's employment by a professional services firm does not raise concerns (and thus should not be deemed non-independent) as long as the director or family member is not involved in the provision of services to the company and does not supervise employees who are involved.
Global Environmental & Social Questions
Survey Question: In your organization's view, on globally-applicable environmental and social topics, particularly climate change, biodiversity, and human rights, should ISS benchmark policy and policy application aim for global consistency (to the extent possible), or should it take a market-specific approach where relevant due to differing country and/or region-specific standards, regulations or practices? Please respond with respect to each issue: Climate, Biodiversity, and Human Rights.
- A majority of investor respondents indicated that ISS benchmarking policy and policy application should be globally consistent across all three topics.
- A majority of non-investor respondents said ISS policy should be globally consistent on principles, but market-specific in application, on climate. A plurality of non-investor respondents said ISS policy should be market-specific on principles and policy application on biodiversity and human rights.
Survey Question: A "double” or “dynamic” materiality approach that is focused both on effects on the company from external sources and on company's externalities or impacts on the environment and society has been embedded in some regulatory regimes and corporate governance guidelines, such as the EU’s Corporate Sustainability Reporting Directive, the Global Reporting Initiative, and the OECD Corporate Governance Principles (2023 version). How does your organization consider such "double materiality" in assessing E&S topics?
- A plurality of investor respondents and non-investor respondents said that materiality assessments should include the company’s expected impact on the
environment and society, as externalities can be expected to impact the company’s financial performance in the medium- to long-term; however, the Society expressed significant concern about both the wording of this question, as well as the answer choices, which we believed would impact the integrity of the results.
Survey Question: If there is evidence that an environmental or social risk may be material to a company – such as presence of one or more significant controversies, identification of the risk as material by the company, or a clear link to that risk by the company’s business activities, what kinds of actions/disclosures do you consider it appropriate for investors to expect from the company to address the risk? (Choose all that apply)
- A majority of investor respondents said it would be appropriate to expect disclosure about company oversight of the risk; targets or actions to reduce material impacts of the risk; a recent company materiality assessment of the risk; if relevant, scenario analyses, for example comparing company strategy to scenarios that scientists view as sustainable; and third-party audit or approval of materiality assessment of the risk. Comparatively, a majority of non-investor respondents selected only disclosure about company oversight of the risk (90%) and targets or actions to reduce material impacts of the risk (65%) as appropriate expectations.
Survey Question: In 2023, for boards of companies considered to be high emitters of greenhouse gases (GHGs), ISS benchmark policy considers a board to be materially failing in its risk oversight responsibilities if the company did not have an overall ISS assessment of at least "Meets Standards" on climate-related disclosure. A possible policy change that is being considered for the future would be to consider that each ISS "climate disclosure pillar" assessment – specifically “Governance,” “Strategy,” “Risk Management,” and “Metrics and Targets” – should individually be at the level of "Meets Standard", as well as the overall assessment. Do you consider boards of such companies to be materially failing if not assessed to be at least "Meets Standards" on each ISS climate disclosure pillar – specifically “Governance,” “Strategy,” “Risk Management,” and “Metrics and Targets”?
- A majority of investor respondents responded "Yes" and a majority of non-investor respondents said "No."
Survey Question: Which guidelines, standards, and frameworks does your organization consider relevant to use when drafting (for issuers) /assessing (for investors) a company's climate transition strategy or plan? (Choose all that apply)
- A majority of investor respondents and non-investor respondents selected the TCFD recommendations and CDP. Most investor respondents also supported the SBTi guidelines and the CA100+ Benchmark.
Survey Question: How tolerant would you be of a company's reduction in transparency that resulted from risks from increased politicization of "ESG"?
- A majority of investor respondents said that risks from lack of transparency are greater and that they would not be tolerant of reductions in transparency. In contrast, a majority of non-investor respondents indicated that risks from political threats are a bigger risk and that they would be tolerant with lack of transparency on sensitive topics.
The Annual Policy Survey is part of ISS's annual policy development process. ISS will release key draft policy updates for public comment and release final policies in late November or early December applicable to shareholder meetings occurring on or after February 1, 2024.
See ISS’s release and additional information & resources on our Proxy Advisors page.