Preamble
ISS ESG’s Quarterly Engagement Update series highlights key trends that emerge through activities conducted on behalf of participating investors under its 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 Q2 2023, ISS ESG facilitated engagement on behalf of signatory investors with a total of 141 companies across 162 topics. ISS ESG conducted engagements with 33 companies under Norm-Based Engagement, and the Thematic Engagement solution facilitated engagement with 108 companies. One company was engaged through both solutions.
Table 1: Collaborative Engagement Activity, Q2 2023
Source: ISS ESG
While the companies engaged with are spread out across regions globally, most were domiciled in Asia-Pacific (APAC) (50%), North America (35%), and Europe, the Middle East, and Africa (EMEA) (15%).
Figure 1: Regional Distribution
Source: ISS ESG
Across the 162 topics that ISS ESG facilitated engagement on during Q2 2023, there was a relatively even distribution between Environment topics (57%) and Social topics (41%), 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 Environment topics, most engagements facilitated by ISS ESG during Q2 2023 related to Water, Net Zero, and Biodiversity under Thematic Engagement, followed by Environment Norms under Norm-Based Engagement. Within the area of Environment Norms, the most common sub-topics included controversies related to pollution and depletion of biodiversity.
Among Social topics, most of the engagement related to Gender Equality, followed by Human Rights Norms and Labour Rights Norms under Norm-Based Engagement. Within Labour Rights Norms, the most common themes were union rights and working conditions. Within the area of Human Rights Norms, the most common sub-topics were controversies related to right to life, consumer privacy, and indigenous rights.
Figure 3: ESG Topics Breakdown
Source: ISS ESG
The topics that ISS ESG facilitated collaborative engagement on in Q2 2023 covered 13 of the UN Sustainable Development Goals (SDGs). The most common SDGs included SDG 5 – Gender Equality, SDG 6 – Clean Water and Sanitation, SDG 15 – Life on Land, SDG 13 – Climate Action, SDG 14 – Life below Water, and SDG 8 – Decent Work and Economic Growth.
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. 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, as well as in a March 2023 webinar dedicated to Trends in ESG Engagement.
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.
Authored by:
Sana Cheruvallil, ESG Engagement Co-ordinator, ISS ESG
Georg Präauer, ESG Engagement Manager, ISS ESG
