Building a Climate Change Voting Policy

AUGUST 1, 2019

While many institutional investors place climate change as a priority issue among their investment stewardship initiatives, it can be especially challenging to systematically incorporate climate change into proxy voting and engagement strategies. Companies’ annual meeting agendas rarely include proposals dealing directly with climate change issues. Only a small minority of companies – typically large firms in energy-intensive sectors, mainly in the U.S. – may receive climate-related shareholder proposals. Further, many shareholder proposals dealing with climate issues do not make it to the ballot, as they are either withdrawn by proponents or may be omitted by companies. However, climate change is a systemic risk affecting all sectors of the economy, all markets, and large and small companies alike.

In this article, we provide a framework for investors looking to build a proactive proxy voting and engagement policy based on climate change criteria, following four key steps:

  1. Identifying portfolio priorities and selecting relevant factors related to climate change risks and opportunities based on an assessment of company disclosure and performance;
  2. Creating a methodology for ranking and prioritizing portfolio companies based on climate-related concerns for engagement and voting;
  3. Implementing a voting and engagement strategy; and
  4. Periodically reviewing and revising the climate change stewardship program.

Recognizing the need of many investors for a comprehensive climate assessment tool for the purposes of investment stewardship, ISS is launching a new ISS Custom Climate Voting Service, which uses ISS ESG’s extensive climate data and proprietary research, allowing investors to assess a range of climate-related factors for the purposes of proxy voting. In addition, select ISS Benchmark and Specialty Policy research reports will include the ISS Climate Awareness Scorecard in the future, giving investors a comprehensive climate risk profile of the companies under review.

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