Blogs

Kelly Drye's "Preparing for Proxy Season: ISS Environmental & Social QualityScore" provides an overview of ISS's new E&S Quality Score (previously reported on here), which was expanded to 4,700 public companies in May. While the industry group-based score - which joins the now-mature ISS Governance QualityScore - doesn't impact ISS's proxy voting recommendations, it will be reflected in ISS's proxy research reports and thus has the ability to influence ISS's institutional investor clients.

Notably, Kelly Drye points out that although the score is largely based on companies' E&S disclosure practices rather than their actual E&S practices, company participation in or formal endorsement of E&S initiatives is also taken into account. According to the Key Issues document: "Confirmation of company participation in or formal endorsement of authoritative multi-stakeholder initiatives is collected from websites or member list made available by the relevant initiatives."

The FAQs elaborate:

Why is participation in initiatives considered a relevant factor?

While companies are duly credited for their policies and associated environmental and social disclosure, participation in relevant and reputable ESG-focused initiatives is also prized. This is because such initiatives have a threshold of conduct for participation, give access to shared learning on best practice from industry peers, and confirm and reaffirm the company's commitment to expected standards. In addition to standard industry initiatives, multi-stakeholder initiatives provide a risk-management framework supported by stakeholders. Furthermore, international initiatives enable a standardized and comparable disclosure structure across markets. The selection process of initiatives is stringent, and only a few are considered both reputable and relevant.

Companies are encouraged to review and verify the data ISS uses to determine their scores.