Institutional Shareholder Services (ISS) released its finalized 2022 policy updates on Tuesday, revealing the proxy adviser’s renewed focus on climate oversight and director accountability.

Following the release of its proposed policy changes on November 4, which were open for public comment for two weeks, ISS has now finalized its policy changes, effective from February 1, 2022.

Climate change and director accountability
In response to climate-related risks being “among the most critical topics for many investors,” ISS’ new climate accountability policy will focus on Climate Action 100+ focus companies, identified by investors as being especially susceptible to climate risk.

The proxy adviser will recommend voting against responsible directors at focus companies that have failed to provide adequate disclosure in line with Task Force for Climate-related Financial Disclosure (TCFD) recommendations.

Directors at Climate Action 100+ focus companies will also face adverse recommendations where they do not have quantitative greenhouse gas (GHG) emission reduction targets in place covering “at least a significant portion of the company’s direct emissions,” ISS revealed.

’Say on climate’
Both management and shareholder proposals seeking advisory annual votes on corporate climate transition plans will continue to be assessed on a case-by-case basis.

Management “say on climate” proposals will be assessed based on a variety of factors, including their alignment with TCFD recommendations, the completeness of their short-, medium-, and long-term emissions reduction targets, and whether the company has sought and received third-party approval that its targets are science-based.

Board diversity
Board diversity policies previously announced in 2020 that will take effect in 2022 include the expectation that “large companies” in the U.S. will have at least one racially/ethnically diverse director.

Starting in 2023, ISS will recommend voting against chairs of nominating committees at all U.S.-listed companies where there are no female directors.

In 2022, all Latin America-listed companies will be expected to feature at least one woman on the board, ISS said.

In Canada, the proxy adviser will expect all listed companies to feature at least one woman on the board in 2022, with at least 30% female representation for “large Canadian companies.”

In the U.K. and Ireland, the proxy adviser will recommend voting against nominating committee members at FTSE 100 companies where boards fail to feature at least one director from an ethnic minority background. This rule will extend to “most other U.K. companies” by 2024.

Starting in 2023, ISS will recommend voting against “top executives” at Japan-listed boards if they fail to feature at least one female director.

Unequal voting rights
Due to the “strong support” expressed through survey results, ISS will begin in 2023 to generally recommend voting against governance committee members at U.S.-listed companies with unequal voting rights.

Companies will be exempt from this policy if they are considered to provide “sufficient protections for minority shareholders,” such as allowing a regular binding vote on whether the capital structure should be maintained.

Compensation
In Canada, ISS is raising the minimum support threshold that triggers a responsiveness analysis on a company’s “say on pay” proposal from 70% to 80%, in line with Canadian Coalition for Good Governance recommendations.

In Europe, the proxy adviser will now take into account the presence and terms of a derogation policy, an exemption from a rule, when analyzing a company’s remuneration policy. These policies will be expected to “clearly define and limit any elements and the extent to which derogations may apply.”