Following the recent release of the results of its annual Benchmark Policy Survey (reported on here), ISS released on Friday for public comment its proposed 2023 voting policies, which include these proposed changes impacting US companies:
Climate
Under the proposed new policy, ISS will recommend a vote against (or withhold from) the appropriate director(s) or other "relevant voting item" at high emitting companies (*currently defined as those companies on the current Climate Action 100+ Focus Group list), where the company:
- Does not provide adequate disclosure of climate-related risks, such as pursuant to the TCFD framework; and
- Does not have either medium-term or Net Zero-by-2050 GHG emissions reduction targets, which should cover at least the vast majority (95%) of the company’s Scope 1 and Scope 2 emissions
Negative vote recommendations will be differentiated based on relevant market and company factors.
*ISS asks commenters to identify what criteria they would consider important if it were to develop its own target group of high emitting companies for this policy in the future. Concerns about ISS’s use of the Climate Action 100+ Focus Group as a proxy for high emitting companies was among the issues the Society raised in our comment letter.
Board Gender Diversity
ISS’s board gender diversity policy currently applicable to Russell 3000 and S&P 1500 companies is proposed to be extended to all companies covered under its US policy as well as qualifying Foreign Private Issuers effective February 1, 2023.
According to the policy, ISS will recommend a vote against (or withhold) from the nominating committee chair (or other relevant directors on a case-by-case basis) of boards lacking gender diversity subject to an exception if there was a woman on the board at the preceding annual meeting and the board makes a firm commitment to return to a gender-diverse status within a year, and a newly proposed one-year grace period for boards that lack a woman on the board but have disclosed as least one self-identified non-binary director.
Capital structure
The proposed new policy eliminates the one-year grace period applied in 2022 for grandfathered companies with unequal voting rights and would provide for a negative vote recommendation against directors, committee members, or the entire board (other than new nominees, which would be evaluated on a case-by-case basis) for all companies with unequal voting rights, subject to limited exceptions (such as newly public companies that adopt a 7-year sunset provision) and a proposed de minimis exception for unequal voting rights of 5% of total voting power.
Problematic governance structures – newly public companies
The proposed new policy defines a “reasonable sunset provision” of seven years (maximum) as a mitigating factor that would be considered in the application of its problematic governance structure policy. The policy otherwise provides for a negative vote recommendation against directors, committee members, or the entire board (other than new nominees, which would be evaluated on a case-by-case basis) of companies that include bylaw or charter provisions that provide for a supermajority vote to amend the bylaws or charter, a classified board structure, or other egregious provisions.
Exculpation of officers
In light of the recent changes to Delaware law, the proposed policy would generally support proposals providing for officer exculpation provisions in a company's charter to the extent permitted under applicable state law.
Political spending/lobbying alignment
Under the proposed new policy, ISS will generally vote on a case-by-case basis for proposals requesting disclosure of the alignment between the company’s political spending/lobbying and publicly stated values and policies, subject to enumerated considerations
The proposed policy changes are accompanied by targeted questions in addition to the question noted above regarding the target group of high emitting companies. Comments should be submitted to policy@issgovernance.com and may be published on ISS’s website unless requested otherwise. The comment period closes November 16 at 5 pm ET.
The new policies, which are expected to be released at the start of December, will apply to shareholder meetings on or after February 1, 2023.
Access additional ISS resources on our Proxy Advisors page.