ROCKVILLE, Md. (February 7, 2022) — ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS), today announced the release of methodology enhancements to its industry-leading Governance QualityScore (GQS) ratings solution for global institutional investors.
Today’s release introduces new factors spanning the topics of Diversity, Equity, and Inclusion (DE&I); CEO Pay Benchmarking; and Climate.
With regard to DE&I, methodology updates include consideration of voluntary public disclosure by companies of U.S. Equal Employment Opportunity Commission data to supplement an existing factor on executive gender diversity and introduce a new factor on executive ethnic diversity to provide insight into companies’ diversity efforts at the senior management level. Other DE&I factors in today’s release assess board and executive diversity policies, statements, and targets in addition to considering aggregated–rather than individual–board and executive corporate diversity disclosures as well as support levels for diversity-related shareholder proposals.
New CEO Pay Benchmarking factors include the CEO Pay Ratio, the percentage of CEO performance-conditioned equity by value, and the ISS Financial Performance Assessment (FPA) figure, which is part of the ISS Pay-For-Performance proxy voting Benchmark Policy and based on the principles of Economic Value Added (EVA).
New factors assessing the level of disclosure of climate-related performance metrics in short- or long-term executive compensation plans and the level of voting support for climate-related shareholder proposals will provide screening capabilities for Environmental, Social and Governance (ESG) investors focused on climate.
All new factors introduced with this update will not be scored until the fourth quarter or 2023.
Recognizing the growing importance to investors that corporate governance plays in overseeing and managing environmental and social risks, Governance QualityScore will also introduce two new subcategories to be housed within the Audit & Risk Oversight category: Environmental and Social Risk Management and Environmental and Social Risk Oversight. The existing “Diversity and Inclusion” subcategory will be re-named to “Diversity, Equity, and Inclusion.”
Additional changes as part of today’s release will see several existing factors on core governance topics, such as director overboarding and board diversity, expanded to companies in markets where they were previously not applicable to allow for more global comparability and analyses. In addition, updates to information security factors provide for the inclusion of data privacy and General Data Protection Regulation violations and information security breaches and the Governance QualityScore methodology will focus more sharply on whether a company’s directors have information security expertise. Separately, the definition of a material governance failure in the U.S. will now also incorporate deficiencies in board climate accountability.
To learn more about ISS ESG’s industry-leading Governance QualityScore ratings, please click here.
About ISS ESG
ISS ESG solutions enable investors to develop and integrate responsible investing policies and practices, engage on responsible investment issues, and monitor portfolio company practices through screening solutions. It also provides climate data, analytics, and advisory services to help financial market participants understand, measure, and act on climate-related risks across all asset classes. In addition, ESG solutions cover corporate and country ESG research and ratings enabling its clients to identify material social and environmental risks and opportunities. For more information, please visit us at: www.iss-esg.com
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