Proxy advisor firms Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis) have recently published updated 2023 proxy voting guidelines. The changes to the guidelines for Canada in 2023 introduce new climate accountability voting policies addressing climate-related disclosure and board oversight of climate-related issues.

Overview of climate accountability policies

ISS published its Proxy Voting Guidelines – Benchmark Policy Changes for 2023 on November 30, 2022, effective for shareholder meetings on or after February 1, 2023. As part of the benchmark policy changes, ISS has extended its “Climate Accountability” policy to Canada. Under this policy, ISS will make negative voting recommendations for the incumbent chair of the appropriate committee (or other directors) of companies that are significant greenhouse gas (GHG) emitters (i.e. companies identified by the Climate Action 100+) that do not: (1) make adequate climate risk disclosure in line with the four-pillar framework established by the Task Force on Climate-related Financial Disclosures (TCFD); and (2) adopt appropriate GHG emissions targets.

Glass Lewis published its 2023 Proxy Voting Guidelines on November 17, 2022, effective for shareholder meetings held after January 1, 2023. Similar to ISS, Glass Lewis has adopted a “Board Accountability for Climate-related Issues” policy under which it will make negative voting recommendations for the chair of the relevant committee (or board) of high-emitting companies (i.e. whose GHG emissions represent a financially material risk, including companies identified by the Climate Action 100+) that do not: (1) provide thorough TCFD-aligned disclosure; and (2) clearly define board oversight responsibilities for climate-related issues. The policy may be extended to the chair of the governance committee where no committee (or board) has been assigned oversight of climate-related issues, and could also apply to other directors. Note that the group of companies to which the Glass Lewis policy applies appears to be broader than for the ISS policy.

Areas of focus for climate accountability

In light of the updates to the 2023 proxy voting guidelines, issuers (especially those with significant GHG emissions or that are identified by the Climate Action 100+) should carefully consider climate risk disclosure and oversight and assess overall alignment with ISS, Glass Lewis and TCFD recommendations. Issuers should note in particular the following key areas of focus for climate accountability in 2023:

Adequate climate risk disclosure

ISS will not consider high-emitting companies to have adequate climate risk disclosure unless they provide detailed disclosure of climate-related risks, including board governance measures, corporate strategy, risk management analyses and metrics and targets. ISS and Glass Lewis suggest that climate risk disclosure should be in line with TCFD recommendations.

Appropriate GHG emissions reduction targets

At this time, ISS considers appropriate GHG emissions reduction targets for high-emitting companies to be medium-term GHG emission reductions targets or Net Zero-by-2050 GHG reduction targets for at least a company’s operations (Scope 1) and electricity use (Scope 2) covering the vast majority (i.e. 95%) of the company’s direct emissions. The language used by ISS leaves open the possibility of future changes to the targets it considers appropriate. 

Clear oversight of climate-related issues

Glass Lewis believes that boards of high-emitting companies should have explicit and clearly defined oversight responsibilities for climate-related issues, which builds on broader Glass Lewis and ISS policies requiring board-level oversight of environmental issues and disclosure of such oversight. 

Expected mandatory climate disclosure

We remind issuers that the Canadian Securities Administrators’ proposed National Instrument 51-107 Disclosure of Climate-related Matters (the Proposed Instrument) and its accompanying companion policy are expected to come into force on or after December 31, 2022, and will mandate climate-related disclosure by non-venture and venture issuers based on TCFD recommendations. For more information on the Proposed Instrument, please refer to our previous Dentons Insights available here (for an overview of the Proposed Instrument) and here (for a discussion of the implications for directors, boards and governance).

For more information on the 2023 proxy voting guidelines or the Proposed Instrument, please contact Bill Gilliland, Ana Cherniak-Kennedy or any member of our Securities and Corporate Finance group.