ISS ESG Quarterly Engagement Update – Q1 2024: Climate Action (SDG 13) Took the Lead in Engagement Activities towards the End of the First Cycle of Net Zero Thematic Engagement

Preamble

ISS ESG’s Quarterly Engagement Update series highlights key trends that emerge through activities conducted on behalf of participating investors under ISS ESG’s Collaborative Engagement Services. These services allow investors to participate in cost-effective joint outreach and dialogue with companies on material sustainability-related themes.

The services also support global investor compliance and reporting requirements with regard to voluntary and statutory stewardship frameworks, including the Principles for Responsible Investment (PRI), the EU Sustainable Finance Disclosure Regulation (SFDR), the EU Shareholder Rights Directive II (SRD II), and stewardship codes across the globe.

The Collaborative Engagement Services leverage ISS ESG’s expertise, research, and data to identify key performance indicators for corporate ESG improvement and momentum that are aligned with recognised standards such as the United Nations Sustainable Development Goals (SDGs).

By engaging collaboratively, institutional investors can increase their focus on Environment, Social, and Governance (ESG) issues and effectively communicate their concerns to investee company management. ISS ESG facilitates engagement on behalf of the participating clients to promote change through active ownership and dialogue. Engagement focus areas include enhanced disclosure, a push for improved sustainability performance, and mitigation of ESG risks.

ISS ESG’s Collaborative Engagement Services consist of two elements:

• The ISS ESG Norm-Based Engagement Solution (formerly known as ‘Pooled Engagement’) is based on outreach to a select universe of upwards of 100 public companies annually. Companies are identified based on their involvement in alleged violations of human rights and labour rights and breaches of environment- and corruption-related recognised international standards, including the OECD Guidelines for Multinational Enterprises, the UN Global Compact, and the UN Guiding Principles on Business and Human Rights.
• The ISS ESG Thematic Engagement Solution – launched in 2022 – prioritises outreach to a select universe of 30-40 public companies per theme over a two-year engagement cycle. It focuses on companies identified as underperforming in the areas of Net Zero, Gender Equality, Water, and Biodiversity.

Collaborative Engagement Activity

In Q1 2024, ISS ESG facilitated engagement on behalf of signatory investors with a total of 149 companies across 174 topics. ISS ESG conducted engagements with 45 companies under Norm-Based Engagement, and the Thematic Engagement solution facilitated engagement with 104 companies.

Table 1: Collaborative Engagement Activity, Q1 2024

COMPANIES ENGAGED WITH	TOPICS ENGAGED ON
149	174

Source: ISS ESG

The companies engaged with are spread out globally, with domiciles in Asia-Pacific (APAC) (43%); North America (37%); Europe, the Middle East, and Africa (EMEA) (18%); and Latin America (2%).

Figure 1: Regional Distribution

Source: ISS ESG

Across the 174 topics that ISS ESG facilitated engagement on during Q1 2024, there was a relatively even distribution between Environment topics (53%) and Social topics (45%), while 2% of the topics concerned the Governance pillar.

Figure 2: ESG Breakdown

Source: ISS ESG

A closer look at the ESG breakdown shows that, among the engagements on Environment topics facilitated by ISS ESG during Q1 2024, the most engaged topic related to Net Zero, followed by Biodiversity, Water, and Environment Norms. Within the area of Environment Norms, the most common sub-topics included controversies related to biodiversity and environmental impact.

Among Social topics, most of the engagements related to Human Rights Norms, closely followed by Gender Equality and then Labour Rights Norms under Norm-Based Engagement. Within Labour Rights Norms, the most common topics were working conditions, workplace discrimination, and gender discrimination. Within the area of Human Rights Norms, the most common sub-topics were controversies related to living standards, the lack of stakeholder consultation, and indigenous rights.

Figure 3: ESG Topics Breakdown

Source: ISS ESG

The topics that ISS ESG facilitated collaborative engagement on in Q1 2024 covered 14 of the UN Sustainable Development Goals (SDGs). The most common SDGs included SDG 13 – Climate Action, SDG 5 – Gender Equality, SDG 15 – Life on Land, SDG 16 – Peace, Justice and Strong Institutions, and SDG 6 – Clean Water and Sanitation.

The first cycle of ISS ESG’s Net Zero Thematic Engagement solution ended in Q1 2024, and Climate Action (SDG 13) was the most engaged SDG category by ISS ESG Collaborative Engagement Services over Q1 2024.

Figure 4: SDG Breakdown

Source: ISS ESG

Future Action

For more than a decade, various soft and hard law initiatives have combined with investor demand as active ownership approaches generally, and engagement specifically, have grown worldwide. These trends have encouraged more common frameworks for investment stewardship for investors seeking changes in the companies they invest in.

ISS ESG’s Collaborative Engagement Services, including Norm-Based Engagement and the Thematic Engagement Solution, are available to support investors in this important area of their stewardship practice. In Q2 2024 ISS ESG will launch the second cycle of the Net Zero Thematic Engagement service, with an extension of the target list to 50 companies.

ISS ESG has also published a range of Thought Leadership material covering ESG engagement, including Stewardship Excellence: Engagement in 2021 and Sustainability Engagement in the Asia Pacific: A Look Back Over the Past Decade. ISS ESG Engagement Managers have also shared insights on corporate engagement in several webinars and articles on themes such as Net Zero, Water, Biodiversity, Gender Diversity, and Modern Slavery, including an April 2024 webinar dedicated to Key Trends in ESG Engagement and the article “Terms of Engagement: Investor Challenges on the Road to Net Zero,” published in November 2023.

Explore ISS ESG solutions mentioned in this report:

• Develop engagement strategies, define achievable engagement objectives and manage your engagement process with ISS ESG’s Norm-Based Engagement Solution and Thematic Engagement Solution.