Glass Lewis published updates to its Australian benchmark proxy voting policies on 29 July 2022, with a summary of changes provided below.
Virtual shareholder meeting provisions
Due to concerns that virtual-only meetings can be held in such a way so as to prevent full shareholder participation, Glass Lewis supports constitutional amendments allowing such meetings only where:
- the board has provided reasonable assurance that virtual meetings will allow for reasonable shareholder participation;
- the board has demonstrated that virtual meetings are not intended to replace in-person meetings where in-person meetings are practical; and
- the board is majority independent and free from other governance concerns, providing additional comfort in relying on the recommendation of the board.
Glass Lewis will typically oppose such constitutional amendments where these conditions are not reasonably satisfied.
Computershare’s Meeting platform is designed to give shareholders best-in-class virtual access and participation while offering flexibility in the features companies can use and offer.
Environmental and social performance measures in remuneration structures
Glass Lewis is strongly supportive of the incorporation of material E&S risks and opportunities in long-term strategic planning but believes that the inclusion of environmental and social (E&S) metrics in remuneration plans should be predicated on each company’s unique circumstances.
- Appropriate use of E&S criteria in incentive plans should be accompanied by transparent, clear and comprehensive disclosure of the E&S strategy, ambitions, targets and performance of the company and a description of how the E&S criteria align.
- Not unlike other performance criteria, it should be made clear how the E&S criteria incentivise behaviours and conditions beyond those reasonably viewed as prerequisites for executive performance.
Environmental and social risk oversight
Beginning in 2023, Glass Lewis will generally recommend voting against the governance committee chair (or equivalent) of ASX300 companies that fail to provide explicit disclosure concerning the board's role in overseeing material E&S issues. If you would like to know how the recommendations of ISS, or other proxy advisors, impact the voting decisions of your shareholders, please contact the Georgeson team.
- A materiality analysis can identify risks pertinent to the company operations, including those that have environmental and social implications and require management mitigation to minimise or eliminate the risk to the company and its shareholders.
- A description of the different governing bodies and their accountabilities should be clearly evidenced and succinctly described including the topics and regularity of meetings at board or committee level.
- The disclosure of fines, settlements, violations, incidents and accidents across the range of E&S issues can serve as an indicator of good governance.
- Governance of environmental and social risk on boards is a relatively new field but guidance material is available, especially in relation to climate change risk oversight.
Say on Climate
Glass Lewis supports robust disclosure of climate strategy but has concerns regarding the implications associated with company ‘Say on Climate’ votes and therefore will assess each on a case-by-case basis.
“We believe that the setting of a company’s business strategy is a function that is best served by the board, which has a fiduciary duty to shareholders. By allowing shareholders to weigh in on a company’s long-term climate strategy (which we believe should be indistinguishable from the company’s long-term business strategy), the board may be abdicating some of this responsibility.”1
When evaluating proposals, Glass Lewis will be looking for a number of elements:
- Seeking information about how the board intends to interpret the vote results for the proposal;
- Clear articulation if the resolution is seeking shareholder approval of the strategy or the disclosure;
- Recommend disclosures aligned to the TCFD, including information concerning the board’s role in setting strategy;
- Whether the company’s greenhouse gas emission targets are reasonable in light of its industry, size, operation and risk profile;
- The progress a company has already made on its climate reporting.
- Just under half of Australia’s largest institutional investors have publicly disclosed a preference for TCFD-aligned company strategy and disclosures. A Georgeson ESG Investor Profiler can determine what disclosure frameworks, ratings agencies and initiatives are preferred by your institutional investors.
- A Say on Climate resolution should not be the sole way a company engages with shareholders on its climate strategy and disclosures. Stakeholder engagement can ensure that the strategy is aligned with stakeholder expectations and that the disclosure of strategy, targets and performance is clearly and transparently articulated. This can include institutional and retail roadshows, investor and proxy advisor meetings and even outbound phone campaigns canvassing retail shareholder sentiment.
The Glass Lewis ESG Profile (ESG Profile) and its associated score (ESG Score) will now feature on the proxy reports of ASX 300 clients as well as Climate Action 100+ focus companies. This is in addition to the Arabesque S-Ray and Sustainalytics ESG Scores. Topics that Glass Lewis will be assessing:
- Board accountability: How well companies are governing E&S issues and to provide information concerning the mechanisms in place to ensure that shareholders are able to hold boards accountable.
- ESG Transparency: How well a company’s sustainability disclosures align with best practice. For example alignment to GRI or TCFD.
- ESG Targets & Aligment: Evaluates company policies with regard to environmental and social initiatives to determine how they are taking action on E&S issues.
- Climate Risk Mitigation: How companies are managing and mitigating climate-related risks. Currently calculated for Climate Action 100+ focus list only.
- Understanding the meaning of ESG scores and the relevance they have on shareholders is key when deciding on a plan to tackle these issues.
- Most ESG Rating agencies use publicly available disclosures but others also conduct private surveys to collect more information. In both cases, it is important that the company’s goals and ESG strategy are well disclosed in order to improve rankings.
Country Head & Managing Director – Australia
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Corporate Governance Associate
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