Updates Include Significant Coverage Expansion In 2020
LONDON (December 2, 2019) — ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc., today announced methodology enhancements to Governance QualityScore to provide users with deeper, actionable insights, particularly with respect to sustainability factors.
Methodology enhancements include a Shareholder Rights factor identifying the highest level of vote support for an environmental and social (E&S) shareholder resolution at the company’s most recent annual meeting. A shareholder resolution that receives a significant level of support for sustainability measures could indicate inadequate company disclosures or sustainability performance issues.
Additionally, ISS ESG has added two new Compensation/Remuneration factors to Governance QualityScore that evaluate whether covered companies disclose any E&S performance measure for their short-term and long-term executive incentive plans. The new factors capture the level of disclosure companies provide around these measures and also whether companies have E&S goals without quantitative metrics.
These ISS ESG Governance QualityScore methodology updates are timely, with a growing number of public companies tying aspects of their executive compensation plans to achieving sustainability goals. An analysis of the new factors finds that, while still a minority, more companies disclose E&S metrics related to their short-term incentive plan versus long-term plan, especially in industries such as Energy, Materials, and Utilities, where ESG metrics like employee health & safety are particularly material to the companies’ businesses.
Thirty-four percent of Energy, Materials, and Utilities companies in the Governance QualityScore universe disclose at least one E&S metric in their executives’ short-term incentive plan, with most having full disclosure of performance measures, such as hurdle rates and thresholds for these goals. Notably, Canada has the greatest percentage of companies with E&S Metrics in their short-term incentive plans (also at 34 percent), as Energy, Materials & Utilities represent more than half of the Canadian companies in the Governance QualityScore universe.
Related to the aforementioned enhancements, Governance QualityScore has also expanded coverage on a factor that evaluates the level of company disclosure on performance measures for long-term equity and cash awards granted in the last fiscal year to companies the Africa, Anglo, Asia-Pacific, Canada, Germanics, Latin America, Nordic, Southern Europe, and Western Europe regions. This is in addition to the current inclusion of this factor for companies the U.S., Australia, New Zealand, and Russia.
Forthcoming in 2020, Governance QualityScore expects to expand its coverage by more than 900 companies in 29 existing, covered countries in an effort to align coverage across ISS ESG rating products, including the ISS ESG Corporate Rating. More than 50 percent of the companies being added are in Europe, while 44 percent are in the Asia-Pacific region. Impacted companies will receive additional information in the coming months.