IA prioritises climate change and diversity for 2022's AGM season
The Investment Association (IA), investment managers' champion in the UK, published its Shareholder Priorities and Institutional Voting Information Service (IVIS) approach for 2022, which place climate change and diversity at the forefront of issues for companies to address ahead of mandatory changes being introduced.
The Shareholder Priorities are issued annually in advance of the Annual General Meeting (AGM) season and outline the key areas that investment managers deem to be critical drivers of long-term value for companies. The IVIS will analyse UK listed companies disclosure against these priorities and against the broader IA guidelines to provide information to help shareholders reach a decision on how to vote at AGMs.
This year, considered alongside audit quality and stakeholder engagement, the below areas are stated as being priorities for investment managers.
Responding to and accounting for climate change
In light of the UK Government's announcement to mandate listed companies to prepare transition plans, as well as guidance from the Task Force on Climate-Related Financial Disclosures (TCFD) being incorporated into the Listing Rules, the IA encourages companies to take immediate action to publish their transition plans to meet the goals of the Paris Agreement and how they will become net-zero, ahead of the Government making such plans mandatory. Directors and the company's auditors should consider the relevance of the risks of climate change, incorporating a statement to that effect when preparing the company's accounts.
Should any company fail to make a disclosure against all four pillars of the TCFD's recommendations, the IVIS will issue it an 'amber top' warning this year.
The FCA has proposed incorporating additional diversity reporting and targets into the Listing Rules, following its consultation last year. Its proposed diversity targets align with recommendations published by FTSE Women Leaders Review last week (on which, see here). Ahead of the FCA's changes being formally incorporated into the Listing Rules, the IA expects companies to articulate to investors the approach that they are taking to meet the new Listing Rules and FTSE Women Leaders Review targets over time.
For the first time, the IVIS will issue its strongest warning, a 'red top', where FTSE 100 companies do not meet the Parker Review target of having one ethnically diverse board member, and an 'amber top' warning for FTSE 250 companies that fail to disclose the ethnic diversity of their boards- or fail to have an action plan to achieve the Parker Review targets- by 2024.
With regards to gender diversity, the IVIS will issue 'red top' warning to FTSE small cap companies where women make up 25% or less of the board composition and 25% or less of the executive committee function. This builds on the existing (and continuing) red top approach taken by IVIS for FTSE 350 companies where the expectation is that boards should comprise at least 33% female representation and 28% of the executive committee function (and their direct reports).
The IA expects disclosures on stakeholder engagement to address the impact of increased costs of living and inflation on both consumers and suppliers. Moreover, the IA encourages companies to continue to pay close attention to any COVID-19 guidance, despite the removal of many COVID-19 related restrictions.
The full Shareholder Priorities and IVIS approach for 2022 can be found here.