As part of our efforts to promote thoughtful voting as a key pillar of effective and sustainable capital markets, we contributed to ISS’s 2023 survey on its benchmark voting policy. ISS is one of the most well-established proxy vote providers to asset managers, and its voting policies have considerable influence over global corporate governance behaviour. It is therefore vital that their analysis is orientated towards supporting long-term value creation.
The survey informs ISS’s benchmark voting analysis and recommendations. Many institutional investors around the world use these recommendations as they formulate their votes at company annual general or extraordinary general meetings.
Below, we highlight key elements from our responses to the survey. Our full response can be viewed here. We also offer additional commentary on points ISS failed to cover in its survey. We should stress that Sarasin & Partners implements its own Voting Policy.
ESG expectations
Whether we are referring to climate change, biodiversity or human rights, corporate action that causes adverse impacts for society is unlikely to be costless for the business, or its shareholders, over the long-term. Our focus on protecting and enhancing enduring value for our clients means we look for responsible corporate behaviour. With few exceptions, we would expect ISS’s benchmark policy to aim for global consistency on environmental and social challenges.
While increased politicisation of ESG has been apparent over the past two years, this does not mean shareholders should now neglect important long-term value drivers. Shareholders have a legitimate interest in companies disclosing how they manage ESG risks. If anything, increased and more consistent disclosure is vital to enable investors to properly assess the economic health of a business.
Responsible tax behaviour
The issue of company tax transparency and aggressive tax behaviour is not adequately addressed in ISS’s benchmark policy. Yet, a company’s tax practices have an important bearing on long-term earnings and regulatory and reputational risk. The PRI Tax Reference Group has set out clear expectations for multinational companies to deliver country-by-country reporting of tax information, ideally under the Global Reporting Initiative (GRI) standard 207. We will continue to engage with ISS to encourage them to provide clear analysis of companies’ tax behaviour against this standard.
Net zero voting
ISS asks a number of questions on how to evolve its integration of climate consideration into votes on climate-related resolutions (please see our responses here). While this is welcome, it is concerning that ISS continues to frame climate change as being relevance only to specific climate-related votes such as the approval of Transition Plans, rather than a consideration in routine votes relating to board accountability[1].
This approach fails to properly reflect the systemic nature of climate change, its implications for long-term business prosperity and its consequent importance to corporate governance. ISS needs to increase both the scope and strength of its expectations.
For the most carbon-intensive companies, we will continue to call on ISS to consider material climate matters for all routine votes, whether for directors, auditors, the financial statements or remuneration policies, as set out in our own Net Zero voting policy.
In addition to this statement, prior to responding the benchmark policy survey, we co-signed the investor letter to the head of ISS governance research highlighting a need for ISS to take a more considered approach to embedding climate factors into voting policies. This was signed by 36 institutional investors, including a number of pension schemes.”
[1] Despite a new policy in 2023 to hold Chairs accountable for a failure to make “the minimum steps needed” to understand and mitigate climate risks, this did not appear to trigger a single vote against a chair.