ISS Releases Annual Outlook Report on Top Governance and Stewardship Issues in 2022

Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance and responsible investment solutions to the global financial community, today released Top Governance and Stewardship Issues in 2022, covering topics of import to institutional investors. Drawing on extensive and differentiated ISS data and research on governance and stewardship trends globally, the report provides timely insight into key areas of focus this year, including climate change, human capital management, diversity and inclusion, executive compensation board accountability, SPACs and shareholder activism.

“We expect to see environmental and social issues continue to feature prominently at 2022 annual meetings, with voting increasingly viewed by a growing number of ESG-focused investors as a critical tool to manage risk or effect change at portfolio companies,” said Georgina Marshall, Global Head of Research at Institutional Shareholder Services. “Whether related to climate, diversity, or human capital management, these topics will likely share headlines this year with perennial front-and-center governance issues, including executive pay and balance sheet activism.”

Key Takeaways:

• Reported racial and ethnic board diversity has improved significantly in the past year in the U.S. According to ISS data, approximately 98 percent of the S&P 500 and approximately 80 percent of the Russell 3000 Index now have at least one board member from a minority background. This compares to 88 percent and 54 percent, respectively, in early 2021. In 2022, many investors will continue to ramp up their expectations for increased disclosure and greater ethnic/racial diversity.
• Efforts to boost gender diversity levels in boardrooms and C-suites are registering steady progress. In the U.S., more than 96 percent of the Russell 3000 and 100 percent of the S&P 500 now have at least one female director. In Canada, 82 percent of issuers have at least one woman on the board, and 24 percent have three or more women on the board – up from 20 percent in 2020. Although the push for gender diversity witnessed the most progress in Europe, European Union (EU) countries are still below the European Commission’s 2012 goal of increasing the number of women on the corporate boards of publicly-traded companies to 40 percent. There has also been a steady increase of gender diversity across Asia where the average rate of female directors jumped from 9 to 15 percent in the last five years
• Climate change risk remains a key topic. Momentum on climate change is continuing to escalate as many investors supported various shareholder proposals on minimizing climate change risk in 2021. A record number of 13 climate-related shareholder proposals received majority support at U.S. companies in 2021. ISS is currently tracking a record 123 U.S. shareholder proposals filed on climate change-related matters, up from 91 filed for all of last year. We have not identified any shareholder proposals requesting shareholder advisory votes on climate transition plans in the U.S. at this time. In the UK and Continental Europe, however, there is a continuation of companies putting their climate transition plans for a vote.
• As COVID-19 pandemic pressures lessen around the world, many companies are considering whether to maintain virtual-only annual meetings or move to in-person or hybrid options. We are seeing signs of possible decreases in the use of virtual-only meetings in North America, and a number of European markets are easing COVID-19 related restrictions or exemptions.  However, the extent of returns to in-person meetings, and  the use of hybrid meeting options remain to be seen.
• As many companies have settled into “new normal” conditions many investors expect a return to more normal incentive programs. Companies with low or failed 2021 say-on-pay vote results are expected  to address shareholder feedback and concerns. 2021 saw an increased rate of failure of say-on-pay proposals and higher shareholder voting dissent in many more cases and across many markets.  This signals many institutional investors’ increased willingness to hold companies accountable for poor compensation decisions, which will likely be a continued trend into 2022.
• The number of E&S-related shareholder proposals filed in the U.S. has increased in the past decade, with 2022 shaping up to be another record year. In 2021 in the U.S. there were a record number of 535 E&S-related proposals filed. Although withdrawals of proposals also increased last year, the total number of proposals filed is still expected to rise in 2022. ISS expects the overall number of E&S proposals filed globally to exceed last year’s levels.
• Support for E&S-related shareholder proposals has steadily increased, a trend also expected to continue in 2022. In the U.S., the overall vote results in 2021 showed that E&S shareholder proposals received 29.1 percent median shareholder support, increasing from 26.7 percent in 2020 and reaching an all-time high. Similarly, in 2021 there were a record number of 39 majority supported proposals in the U.S. focused on E&S issues. That figure compares to 21 proposals in 2020, and 12 in 2019, both of which were the previous high-water marks. Proposals realted to Human Capital Management (HCM) and climate change are expected to continue to draw significant investor support in 2022.
• As the U.S. SPAC boom cools , Europe and Asia join the fray. In the U.S, due in part to regulatory pressures, the number of SPAC transactions slowed in late 2021 and into 2022. In the first quarter of 2022, 34 SPACs held their initial transaction meetings. This is slightly fewer than the 35 meetings held in June 2021 alone, the peak so far for U.S. SPAC transaction approvals. Europe, meanwhile, saw a surge in listed SPACs, especially in the Netherlands, which is likely to continue in 2022. Unlike in the US, the increased competition has been encouraged by various European governments offering SPAC-friendly environments.

To download a copy of the full report, please click here.