EY Center for Board Matters' "2021 Proxy Season Preview" - reflecting the firm's conversations with more than 60 institutional investors* - summarizes investors' views on chief corporate strategic drivers and threats, engagement priorities, ESG reporting, and board effectiveness.
- Success drivers and threats - Investors identified the quality of corporate strategy and ability to execute on that strategy, and the integration of material ESG opportunities into strategy, as among the biggest drivers of strategic success. Climate risk and natural resource constraints and business model disruption were identified as the biggest threats.
- Top engagement priorities - The most common engagement topic themes cited by investors were: (i) workforce diversity disclosure (across multiple dimensions, including race and age), (ii) board diversity disclosure, practices, and policies, and (iii) climate risk.
A deeper dive on human capital disclosure priorities revealed investors' keen focus on workforce diversity, as shown here:
- ESG reporting - Investors coalesced around these ESG reporting tips for companies: (i) focus on topics that are material to the business and tie directly to corporate strategy; (ii) align disclosures to external frameworks; (iii) disclose quantitative data - metrics, performance and goals; (iv) consider integrating material ESG disclosures into SEC filings (e.g., Form 10-K); (v) consider attestation/assurance of ESG data; and (vi) ensure company data is made available to third-party data providers and is accurate since investors tap or rely on them (to varying degrees).
- Board effectiveness - Investors suggested boards focus on: (i) refreshment aligned with corporate strategy; (ii) diversity of race, ethnicity, gender, skills, and experiences; and (iii) processes and tools that enhance the quality and scope of directors' information (e.g., management reporting effectiveness, use of external expertise and other independent information sources).
Each of these focal areas is accompanied in the report by further topical detail, elaboration on the polling data, and instructive key takeaways for the board. The report also captures key themes expressed by the investor respondents in a series of "Questions for the board to consider."
* 62% asset managers | 20% public funds | 13% labor funds | 2% faith-based investors | 3% investor consultants and associations
See "Board diversity to play big role in upcoming proxy season" (Pensions & Investments) and additional information & resources on our Proxy Season 2021 Institutional Investors, and other relevant resource pages.
This post first appeared in the weekly Society Alert!