Major financial investors are to be urged by the world’s largest shareholder advisory firm to vote against company board members if they fail to address global heating in their roles, amid renewed pressure on firms with poor environmental track records.

Institutional Shareholder Services (ISS), which issues advice to some of the world’s biggest fund managers, has updated its proxy voting policy including changes that allow it to recommend votes against company directors over “material failures … including, demonstrably poor risk oversight of environmental and social issues, including climate change”.

The policy shift, which came into force on 1 February, will influence voting recommendations across the 44,000 company reports produced by ISS each year.

ISS, founded in 1985, is believed to account for about 61% of the proxy advisory market, and together with its rival Glass Lewis, tends to hold sway over roughly 20% of shareholder votes used to govern the running of publicly listed companies.

The firm covers firms in 115 countries and counts 2,000 institutional investors – including asset managers, pension funds and hedge funds – among its clients. ISS also casts about 10.2m voting decisions a year for its clients, representing 4.2tn shares.

According to a report by the campaign group ShareAction, major asset managers including Legal and General Investment Management (LGIM), BlackRock, HSBC and Schroders regularly use ISS reports to inform their voting decisions at annual shareholder meetings.

But ShareAction said ISS should have gone further in its climate policy, which is weaker than its position on gender equality. Wolfgang Kuhn, ShareAction’s director of financial sector strategies, said: “The timidity on climate change is disappointing.”

“Proxy advisers have significant influence on asset managers’ voting behaviour and it is long overdue for them to take a stronger position on climate change. But there is little to celebrate in this policy,” Kuhn said.

“Even where directors exhibit ‘demonstrably poor’ oversight on climate risks, ISS will only ‘consider’ recommending a vote against. Contrast this with ISS’ position on gender diversity, which states that it will ‘generally vote against’ the chair of boards with poor gender diversity,” he added.

However, ISS’ new proxy voting guidelines will give extra backing to a growing number of asset managers such as LGIM and BNP Paribas Asset Management, and Sarasin & Partners, which are already waging battles with companies over their environmental policies.

Federated Hermes – which manages £453bn worth of assets – announced in November that it would also begin voting against company chairs if their corporate strategy is “materially misaligned” with the goals of the Paris Agreement, which is meant to limit temperature rises to 2C and avoid the worst impacts of the climate crisis.

Tim Goodman, a director at EOS, the stewardship arm of Federated Hermes, said: “Climate change is a systemic risk, and as such the directors of companies have a responsibility to mitigate rather than exacerbate that risk.

“As we enter AGM season, we’ll be looking closely to ensure the chair and responsible directors of companies fully grasp this reality. We will recommend voting against board members if they fail in that responsibility.”

It joins LGIM, which has had a policy of voting against directors over climate issues since 2016. “We take pride in our stance, but are aware that net zero is not a zero-sum game. We need more investors to put pressure on companies to step up, and welcome this strengthened policy from ISS.”

ISS declined to comment.



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