Describe how you select priority engagement topics to raise with companies.
By way of background, ISS and ISS-Ethix services are designed in part as support tools to facilitate clients’ own engagement. ISS does not conduct bespoke engagement activities on behalf of specific individual clients.
ISS-Ethix provides Pooled Engagement for clients to exercise active ownership through dialogue with companies on environmental, social and governance (ESG) issues. Pooled Engagement also supports signatories in fulfilling their commitment to active ownership; to incorporate ESG principles into ownership policies and practices; to seek disclosure on ESG issues from companies they invest in; and to report on activities and progress.
Both ISS and ISS-Ethix interact with companies as part of the standard research process. The objective of this interaction is to ensure that our research is based on the most comprehensive and accurate information available, and is for the benefit of all ISS clients. This type of interaction is considered by the PRI as part of the research activities to support Principle 1 - incorporate ESG issues into investment analysis and decision-making processes.
The rest of this response will focus on the ISS-Ethix Pooled Engagement product.
Pooled Engagement is a tool for investors to exercise their active ownership through a focused dialogue with companies on environmental, social and governance (ESG) issues. Pooled Engagement is an extension to Norm-Based Screening, the research methodology that analyses companies’ involvement in failures to respect global norms on environmental protection, human rights, labour standards and anti‐ corruption and attaches a Red assessment signal (Companies verifiably involved in an unaddressed failure) or Amber assessment signal (Companies allegedly involved in an unaddressed failure).
Annually, Pooled Engagement facilitates dialogue with around 100 listed companies exposed to alleged or verified violations of norms for environmental protection, human rights, labour standards and anti‐ corruption (i.e. with a red or amber signal.)
ISS-Ethix’s Pooled Engagement service focuses on companies that are assessed under Norm-Based Screening to face alleged or verified severe, systematic or systemic violations of international norms. Engagement under the service is preceded by the feasibility study undertaken under Norm-Based Screening through which we determine whether the desired change to norm-violating practices can be achieved through dialogue. Influential factors include the company’s perceived level of responsibility, steps it has taken to mitigate the possibility of a norm-violation and availability of both stakeholder and expert sources to facilitate constructive dialogue. Engagement is also accompanied by clear and time- bound engagement targets.
Describe how you define the objectives and milestones of the engagements and how you involve your clients in this process.
In line with the targets established under the feasibility study, ISS-Ethix addresses shortcomings in the context of the business case, including the standards for the company’s industry. ISS starts by building a dialogue with the subject company, a relationship that creates conditions for a constructive discussion through which investors may in turn gather information to information their own engagement efforts (at their discretion). Next ISS identifies how the company addresses operational, legal and reputational risk, and how its risk management processes compare to its peers. The objective with ISS-Ethix’s Pooled Engagement approach is improved disclosure - to encourage companies to elaborate on their efforts to design and implement better risk management systems, effective at the operational level.
In terms of reaching agreement, institutional clients who have opted in to the pooled engagement service receive an e-mail containing approximately 25 draft letters in the beginning of each quarter (the exact number varies by quarter but is always at least 25). Upon reviewing the draft engagement letters, clients then have the possibility to opt-out of any company dialogue process. Letters are then signed by the investors who remain in the opt-in pool and sent to companies.