ISS Releases Annual Proxy Voting Guideline Updates

Who may be interested: Fund advisers and boards preparing for the 2023 proxy season.

Quick Take: ISS released updates to its proxy voting guidelines, including changes to its recommendations with respect to climate action, board gender diversity, and corporate governance best practices.

On November 30, proxy advisory firm Institutional Shareholder Services (“ISS”) announced yearly updates to its proxy voting guidelines which serve as the framework for proxy voting recommendations for clients of ISS. The updates take into account survey responses and public comments from investors, corporate entities, and affiliated organizations as well as the results of ISS’s internal review process.

Fund Proxy Matters

With respect to investment companies, the updates include matters relating to board make-up and corporate governance. ISS updated gender diversity standards for boards and recommended against unequal voting rights structures and “problematic governance structures,” such as newly created classified boards and supermajority voting requirements without accompanying sunset provisions to fully eliminate such structures in no more than seven years. Other updates to the guidelines relate to officer compensation, political expenditures, and liability exculpation for officers’ breaches of the fiduciary duty of care.

Issuer Proxy Matters

With respect to public companies, ISS updated the framework and factors that it uses to evaluate disclosure of climate risk and greenhouse gas (“GHG”) reduction targets for company operations and electricity use. The updated climate policy recommends voting against directors nominated by companies that ISS believes are not adequately disclosing climate risk and do not have certain GHG reduction targets in place. This updated policy applies to “high-emitting” companies—those listed in the Climate Action 100+ Focus Group.

The 2023 updates will apply to proxy voting taking place on or after February 1, 2023.

The Executive Summary of the proxy voting guideline updates can be found here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.