ISS Benchmark and Climate Policy Surveys Released

 

In the first survey, ISS asks the following executive compensation and governance related questions:

• Should non-financial ESG metrics be included in executive incentive plans? If so, where? 
  • Interestingly, ISS lists several criticisms of ESG metrics, including that they might wind up rewarding executives “for vague and poorly-defined outcomes that should already be considered part of the executive's job.”
• Should companies conduct third-party racial equity audits? 
  • This question alludes to a recent spate of shareholder proposals asking companies to conduct a third-party racial equity audit and issue a public report.
• Should ISS consider CEO pay “quantum” (magnitude) versus peers over a longer timeframe than just one year? 
  • This may be a response to criticism (including from the Center) that comparing absolute CEO pay to peers on an annual basis is misleading and illogical, since even the impact of a new or retiring CEO is not taken into account in the current test.
• Should mid-cycle changes to LTI plans still be acceptable at this point in the pandemic? 
  • Finally, this question continues ISS’s efforts to ascertain the appetite of most investors for mid-cycle LTI changes for companies still being negatively impacted by the pandemic.

While the climate survey does not specifically touch on linking climate risk reduction metrics to executive compensation, it provides useful insight into how ISS will evaluate ESG risks going forward. Previously, ISS would generally call for companies to provide meaningful disclosure about how they are addressing a variety of ESG risks such as reducing greenhouse gas emissions or evaluating their efforts to improve diversity & inclusion. However, the tone of the survey clearly indicates that ISS will likely shift to issuing vote recommendations based on ESG performance. For example, the survey asks if high-impact companies (companies with the highest levels of greenhouse gas emissions) should be subject to a more stringent review of climate performance for director elections. Similarly, it asks for opinions on the emerging “say-on-climate” votes where shareholders request a vote to approve management’s plans to address climate risk. 

  

The Center will submit comments and would appreciate your input (you can share your views here and we will keep them fully anonymous). We also encourage your company to submit its own response to the survey via the link on ISS’s website here, by August 20th at 5:00 PM EDT. If your organization is interested in responding to the Climate Policy Survey, it can be found here.