ISS UK Voting Guidelines 2022

Institutional Shareholder Services (ISS) has published its updated proxy voting guidelines for the UK and Ireland (as part of its guidance for Europe, Middle East and Africa), effective for meetings on or after 1 February 2022.

Changes made in respect to remuneration relate to ISS’ position on ESG metrics in incentive plans. The updated guidelines also include amended provisions on ethnic diversity and climate accountability.

The updated guidelines can be read here.

ESG metrics in incentive plans

ISS guidance has been updated to state that: “Environment, Social and Governance (ESG) performance conditions may be used but targets should be material to the business and quantifiable.”

ISS commentary: “The amendment to the ISS Benchmark policy document for UK and Ireland is not designed to replicate the level of detail introduced by the IA Principles of Remuneration, but instead to confirm that ESG metrics can be included as performance measures utilised by a company's variable remuneration schemes, if the measures are clearly linked to the company’s long-term strategy, material to the business and are quantifiable.”

Ethnic diversity

• ISS will generally recommend against the chair of the nomination committee (or other directors on a case-by-case basis) if the company is a constituent of the FTSE 100 index (excluding investment companies) and has not appointed at least one individual from an ethnic minority background to the board.
• There is an expectation for constituents of the following indices (excluding investment companies) to appoint at least one individual from an ethnic minority background to the board by 2024:
  • FTSE 250 index
  • FTSE SmallCap;
  • ISEQ 20;
  • Listed on the AIM with a market capitalisation of over GBP 500 million

The above mentioned companies are expected to publicly disclose a roadmap to compliance with best market practice standards of having at least one director from an ethnic minority background by 2024.

Climate accountability

• For companies that are significant greenhouse gas (GHG) emitters, through their operations or value chain, ISS will generally vote against the board chair in cases where ISS determines that the company is not taking the minimum steps needed to understand, assess, and mitigate risks related to climate change to the company and the larger economy.
• For 2022, minimum steps to understand and mitigate those risks are considered to be the following. Both minimum criteria will be required to be in compliance:
  • Detailed disclosure of climate-related risks, such as according to the framework established by the Task Force on Climate-related Financial Disclosures (TCFD), including:
    • Board governance measures;
    • Corporate strategy;
    • Risk management analyses; and
    • Metrics and targets.
  • Appropriate GHG emissions reduction targets.

For 2022, “appropriate GHG emissions reductions targets” will be any well defined GHG reduction targets. Targets for Scope 3 emissions will not be required for 2022 but the targets should cover at least a significant portion of the company’s direct emissions. Expectations about what constitutes “minimum steps to mitigate risks related to climate change” will increase over time.