Climate change and diversity will be top of mind for investment managers during this year’s AGM season, according to the new expectations on companies issued today by the Investment Association (IA). The shareholder priorities are issued annually ahead of AGM season and outline the key areas that investment managers deem to be critical drivers of long-term value for companies.
Linked to these priorities is the IVIS (Institutional Voting Information Service) approach to analysing these issues. IVIS will analyse UK listed companies against these priorities and the broader IA guidelines to provide information to help shareholders reach a decision on how to vote at company AGMs.
With climate change presenting one of the biggest risks to the long-term sustainability of a company, investment managers will be looking for businesses to take immediate action, explaining how climate change will impact them and how they are mitigating the risks. They encourage firms to disclose their transition plans to net-zero ahead of these being mandated by Government. This year, IVIS will give an ‘amber-top’ warning for all companies that do not make disclosures against all four pillars of the Task Force on Climate-Related Financial Disclosures (TCFD).
Diversity continues to be a priority area for investment managers. For the first time, IVIS will issue its strongest warning, a ‘red top’, where FTSE 100 companies fail to meet the Parker Review target of having one ethnically diverse board member, and ‘amber top’ FTSE 250 companies that do not disclose the ethnic diversity of their boards or have an action plan to achieve the Parker Review targets by 2024.
In 2022, IVIS will red top FTSE small cap companies where women represent 25% or less of the board and 25% or less of their Executive Committee. This builds on the existing red top approach taken for FTSE 350 companies where the expectation is for women to represent at least 33% of the Board and 28% of the Executive Committee and their direct reports.
Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, said:
“Investment managers want to support companies to deliver long-term, sustainable returns on behalf of savers and pensioners up and down the country. Climate change and the transition to net zero is not an issue which can be left for future management teams or boards, investors wish to see the actions the current leadership will be taking, and investment managers will be watching closely this AGM season to ensure they are doing just that.
“While good progress has been made with greater female representation on boards and in senior leadership across the FTSE, investment managers now want to see this positive momentum include ethnic minority representation on boards, and are calling on all FTSE 100 companies to meet the Parker Review target this year.”
The Shareholder Priorities build on the Principles of Remuneration, published in late 2021, which outline investment managers expectations on company executive pay and pensions.