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), 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 positive change through active ownership and dialogue, with focus areas including 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, labour rights, and breaches of recognised international environment- and corruption-related standards, including the OECD Guidelines for Multinational Enterprises, 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.
Q4 Collaborative Engagement Activity
In Q4 2022, ISS ESG facilitated engagement, on behalf of signatory investors, with a total of 195 companies across 215 topics. With the launch of three additional themes under the Thematic Engagement solution during Q3, the number of companies engaged with under Thematic Engagement reached 123. Under Norm-Based Engagement, ISS ESG facilitated engagement with 66 companies, and six companies were engaged through both solutions.
Table 1: Collaborative Engagement Activity, Q4 2022
Source: ISS ESG
While the companies engaged with are spread out across all regions globally, Asia (43%), North America (36%), and Europe (18%) saw most engagement activity during Q4.
Figure 1: Regional Distribution
Source: ISS ESG
Across the 215 topics that ISS ESG facilitated engagement on during Q4, there was a relatively even distribution between Environment topics (51%) and Social topics (46%), while 3% 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 engagement facilitated by ISS ESG during Q4 related to Water and Biodiversity, followed by Environment Norms under Norm-Based Engagement and Net Zero. Within the area of Environment Norms, the most common sub-topic was related to pollution.
Among Social topics, most of the engagement related to Gender Equality, followed by Labour Rights and Human Rights Norms under Norm-Based Engagement. Within Labour Rights, the most common sub-topics were forced labour, union rights, and workplace health and safety. Within the area of Human Rights, the most common sub-topics were indigenous rights, living standards, and the right to privacy.
Figure 3: ESG Topics Breakdown
Source: ISS ESG
Considering the perspective of the SDGs, the topics that ISS ESG facilitated collaborative engagement on in Q4 covered 14 SDGs in total. The most common SDGs included SDG 6 – Clean Water and Sanitation, SDG 5 – Gender Equality, SDG 8 – Decent Work and Economic Growth, SDG 14 – Life Below Water, SDG 15 – Life on Land, and SDG 13 – Climate Action.
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 globally. These trends have encouraged more common frameworks for investment stewardship for investors seeking positive 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.
For more information on ISS ESG’s Collaborative Engagement Services, please visit us at: issgovernance.com/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.
By: Sana Cheruvallil, ESG Engagement Co-ordinator, ISS ESG
Vyankatesh Padmanabhi, ESG Engagement Co-ordinator, ISS ESG
