ISS 2022 POLICY UPDATES UK AND EUROPE - Georgeson
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ISS 2022 POLICY
UPDATES UK
AND EUROPE
CERTAINTY INGENUITY ADVANTAGE
INTRODUCTION
ISS ran their 2021 Global Benchmark Policy Survey from 28 July 2021 to 27 August 2021 and, on 1 October 2021, released the
results1 of this survey.
On 4 November 2021 ISS made available for public The most important changes applicable to large-cap Continental Europe
comment a number of proposed changes to ISS’s
2
companies across the UK & Europe fall under the > Board of Directors
benchmark voting policies for 2022. Finally, on 7 following categories:
December 2021, ISS announced their policy updates > Election of a former CEO as Chair of the Board
for the 2022 AGM season . 3 Social and Environmental Issues
(applicable across UK & Europe) > Board gender diversity
The updates will be effective from 1 February 2022 > Say on Climate (SoC) management proposals
> Capital Structure
and apply to all shareholder meetings thereafter. The
> Say on Climate (SoC) shareholder proposals
below memo summarises the policy changes that > Share issuance requests
will be applied across UK & Ireland and Continental > Board of Directors
> Increases in authorised capital
Europe.
> Climate accountability
> Remuneration
UK & Ireland > Executive compensation-related proposals
> Board of Directors
> Equity-based compensation guidelines (with
> Board diversity (ethnic diversity) removal of French exception)
The updates will be effective
> Remuneration
from 1 February 2022 and
> Non-financial ESG performance conditions
apply to all shareholder
meetings thereafter.
1 https://www.issgovernance.com/file/publications/2021-global-policy-survey-summary-of-results.pdf
2 https://www.issgovernance.com/file/policy/proposed-benchmark-policy-changes-2022.pdf
3 https://www.issgovernance.com/file/policy/latest/updates/EMEA-Policy-Updates.pdf
ISS 2022 POLICY UPDATES UK AND EUROPE > 2
SOCIAL AND ENVIRONMENTAL ISSUES (APPLICABLE ACROSS UK & EUROPE)
Say on Climate (SoC) management proposals > Whether the company’s climate data has received > Whether the company has been the subject of
third-party assurance; recent, significant violations, fines, litigation, or
ISS has introduced guidelines for Say on
controversy related to its GHG emissions; and
Climate management proposals. Their general > Disclosure of how the company’s lobbying
recommendation policy states that ISS will “vote activities and its capital expenditures align with > Whether the proposal’s request is unduly
case-by-case on management proposals that request company strategy; burdensome (scope or timeframe) or overly
shareholders to approve the company’s climate prescriptive.”
> Whether there are specific industry
transition action plan, taking into account the
decarbonisation challenges; and
completeness and rigour of the plan. Information
that will be considered where available includes the > The company’s related commitment, disclosure,
following: and performance compared to its industry peers.”
> The extent to which the company’s climate related Say on Climate (SoC) shareholder proposals
disclosures are in line with TCFD recommendations
ISS has also introduced guidelines for Say on Climate
and meet other market standards;
shareholder proposals. ISS will recommend to “vote
> Disclosure of its operational and supply chain GHG case-by-case on shareholder proposals that request
emissions (Scopes 1, 2, and 3); the company to disclose a report providing its GHG
emissions levels and reduction targets and/or its
> The completeness and rigour of company’s short-,
upcoming/approved climate transition action plan
medium-, and long-term targets for reducing
operational and supply chain GHG emissions and provide shareholders the opportunity to express
(Scopes 1, 2, and 3 if relevant); approval or disapproval of its GHG emissions reduction
plan, taking into account information such as the
> Whether the company has sought and approved following:
third-party approval that its targets are science-
based; > The completeness and rigour of the company’s
climate-related disclosure;
> Whether the company has made a commitment
to be “net zero” for operational and supply chain > The company’s actual GHG emissions performance;
emissions (Scopes 1, 2, and 3) by 2050;
> Whether the company discloses a commitment
to report on the implementation of its plan in
subsequent years;
ISS 2022 POLICY UPDATES UK AND EUROPE > 3
Board of Directors ISS clarifies that “for 2022, minimum steps to For 2022, “appropriate GHG emissions reductions
understand and mitigate those risks are considered targets” will be any well-defined GHG reduction
Climate accountability
to be the following. Both minimum criteria will be targets. Targets for Scope 3 emissions will not be
When it comes to climate accountability, ISS will focus
required to be in compliance: required for 2022 but the targets should cover at
on the 167 companies currently identified as the
least a significant portion of the company’s direct
Climate Action 100+ Focus Group list. > Detailed disclosure of climate-related risks, such
emissions. Expectations about what constitutes
as according to the framework established by the
“minimum steps to mitigate risks related to climate
In 2022, the updated guidelines state that “for Task Force on Climate-related Financial Disclosures
(TCFD), including: change” will increase over time.”
companies that are significant greenhouse gas (GHG)
emitters, through their operations or value chain,
> Board governance measures;
generally vote against the responsible incumbent
director(s) ”[in the UK & Ireland “against the board > Corporate strategy;
chair”]” or any other appropriate item(s) in cases
where ISS determines that the company is not taking > Risk management analyses; and
the minimum steps needed to understand, assess,
> Metrics and targets.
and mitigate risks related to climate change to the
company and the larger economy.” > Appropriate GHG emissions reduction targets.”
For 2022, “appropriate GHG
emissions reductions targets”
will be any well-defined GHG
reduction targets.
ISS 2022 POLICY UPDATES UK AND EUROPE > 4
UNITED KINGDOM & IRELAND
Board of Directors Remuneration
Board diversity (ethnic diversity) Non-financial ESG performance conditions
Under the new ISS guidelines the scope of board diversity is expanded beyond ISS has clarified that “Environment, Social and Governance (ESG) performance
gender diversity to include ethnic diversity. From 2022, ISS “will generally conditions may be used but targets should be material to the business and
recommend against the chair of the nomination committee (or other directors on a quantifiable. There should also be a clear link between the objectives chosen
case-by-case basis) if the company is a constituent of the FTSE 100 index (excluding and the company’s strategy.”
investment companies) and has not appointed at least one individual from an ethnic
minority background to the board.
Furthermore, there is an expectation for constituents of the following indices There should also be a clear link between the
(excluding investment companies) to appoint at least one individual from an ethnic
objectives chosen and the company’s strategy.
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.”
ISS 2022 POLICY UPDATES UK AND EUROPE > 5CONTINENTAL EUROPE
Board of Directors In terms of explanation, they clarify that “share issuances that may lead to a capital
increase of up to 60 percent are generally supported: 50 percent with pre-emptive
Election of a Former CEO as Chair of the Board
rights plus 10 percent without pre-emptive rights”. Additionally, “all authorisations
ISS has removed the circumstances they considered an exception in case a former
are considered: both the existing authorisations that remain effective after the
CEO is nominated as chair of the board. The new guidelines state to “generally
concerned general meeting and the authorisations proposed at the general meeting
vote against the (re)election of a former CEO to the supervisory board or board
under analysis”.
of directors in Austria, Germany, and the Netherlands if the former CEO is to be
chair of the relevant board. To this end, companies are expected to confirm prior to
Increases in authorised capital
the general meeting that the former CEO will not be (re)appointed as chair of the
ISS has rewritten the guidelines around increases in “authorised capital”. In the
relevant board. Given the importance of board leadership, ISS may consider that the
new guidelines a distinction is made between dilutive and non-dilutive measures,
chair of the board should be an independent non-executive director according to the
the limitation is removed, and the case-by-case approach depends on the local legal
ISS’ Classification of Directors.”
framework of authorised capital, taking into account shareholders’ interest.
Board gender diversity From 2022, the general recommendation will be to “vote for proposals to increase
ISS has updated their guidelines when considering to vote against the chair of the authorised capital on a case-by-case basis if such proposals do not include the
nomination committee (or other directors on a case-by-case basis) if the under- authorisation to issue shares from the (pre-) approved limit. In case the proposals
represented gender accounts for less than 30 percent (or any higher domestic to increase authorised capital include the authorisation to issue shares according
threshold) of board shareholder-elected directors of a widely held company. The new to the (pre-) approved limit without obtaining separate shareholder approval, the
guidelines clarify that the 30% gender diversity quota is not applicable to employee general issuance policy applies.”
shareholder representatives.
Capital Structure
Share issuance requests - general issuances
ISS added a section to clarify that under the guideline the “thresholds are mutually
exclusive”, and adding that “when calculating the defined limits, all authorised and
conditional capital authorisations are considered, including existing authorisations
that will remain valid beyond the concerned shareholders’ meeting.”
ISS 2022 POLICY UPDATES UK AND EUROPE > 6Remuneration specifics are removed, as the burn rate has nearly never been used to oppose an
equity-based compensation plan but as a flag to alert shareholders. This provides
Executive compensation-related proposals
consistency across Continental European markets.”
ISS have updated their expectations, in line with SRDII, around remuneration
disclosure, making three main additions to their existing guidelines. The updated guidelines state: “generally vote for equity-based compensation
proposals or the like if the plan(s) is(are) in line with long-term shareholder interests
Firstly, they now state that companies “are expected to provide meaningful
and align the award with shareholder value. This assessment includes, but is not
information regarding the average remuneration of employees of the company, in a
limited to, the following factors:
manner which permits comparison with directors’ remuneration”.
> The volume of awards (to be) transferred to participants under all outstanding
Secondly, when outlining their expectation that companies adequately disclose all plans must not be excessive: awards must not exceed 5 percent of a company’s
elements of the compensation including, they now refer to a “derogation policy, if issued share capital. This number may be up to 10 percent for high-growth
applicable, which shall clearly define and limit any elements (e.g., base salary, STI, companies or particularly well-designed plans (e.g., with challenging performance
criteria, extended vesting/performance period, etc.);
LTI, etc.) and extent (e.g., caps, weightings, etc.) to which derogations may apply”.
> The plan(s) must be sufficiently long-term in nature/structure: the vesting of
Lastly, ISS has clarified their expectation over how to avoid arrangements that
awards (i) must occur no less than three years from the grant date, and (ii) if
risk “pay for failure”. The new guidelines now state that there “shall be a clear link applicable, should be conditioned on meeting performance targets that are
between the company’s performance and variable awards incentives. Financial and measured over a period of at least three consecutive years;
non-financial conditions, including ESG criteria, are relevant as long as they reward
an effective performance in line with the purpose, strategy, and objectives adopted > If applicable, performance conditions must be fully disclosed, measurable,
quantifiable, and long-term oriented;
by the company”.
> The awards must be granted at market price. Discounts, if any, must be mitigated
Equity-based compensation guidelines (with removal of French exception) by performance criteria or other features that justify such discount.”
ISS updated their guidelines to align with current investor sentiment and local
best practice standards on performance criteria and their measurement, including
a cliff three-year performance period, and removes the preference for relative
performance measures. The new guidelines now state that there “shall be a
Additionally, they have removed from their guidelines the market-specific provision clear link between the company’s performance and
for France relating to the unadjusted burn-rate. They explain that “French market variable awards incentives.
2022 GLASS LEWIS POLICY UPDATES: KEY TAKEAWAYS FOR THE UK AND EUROPE > 7About Georgeson — a Computershare company Established in 1935, Georgeson is the world’s foremost provider of strategic shareholder services to corporations and shareholder groups working to influence corporate strategy. We offer unsurpassed advice and representation for annual meetings, mergers and acquisitions, proxy contests and other extraordinary transactions. Our core proxy expertise is enhanced with and complemented by our strategic consulting services, including solicitation strategy, shareholder identification, corporate governance analysis, vote projections and insight into investor ownership and voting profiles. Our local presence and global footprint allow us to analyse and mitigate operational risk associated with various corporate actions worldwide. For more information, visit www.georgeson.com ©2021 Computershare Limited. Computershare and the Computershare/Georgeson logo are registered trademarks of Computershare Limited. No part of this document can be reproduced, by any means, without the prior and express written consent of Computershare.
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