The Investment Association’s ESG-related shareholder priorities in 2021

Ahead of the 2021 AGM season, the Investment Association (IA) has published its Shareholder Priorities for 2021 and Good Stewardship Guide 2021. In both documents, the key themes are ESG-related. 

Guidance is given on the “colour top” approach that will be taken by the IA’s Institutional Voting Information Service (IVIS) when it reviews corporate governance practices for listed companies with year-ends on or after 31 December 2020.

• Climate change: Investors will expect listed companies to report in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and to identify the directors or committees that are responsible for oversight and management of climate change. For the first time, any listed company in a “high risk” sector (financials, energy, transportation, materials and buildings, agriculture, food and forest products) that does not address all four pillars of the TCFD (governance, strategy, risk management and metrics and targets) will receive an amber top. 

We recently published a detailed review of the TCFD recommendations. 

• Ethnic diversity: Investors will expect listed companies to take actions to improve the ethnic diversity of boards in 2021. Any FTSE 350 company that does not disclose either the ethnic diversity of its board or a credible action plan to achieve the Parker Review targets will receive an amber top.

• Gender diversity: Investors will expect listed companies to increase the gender diversity of the C suite and talent pipeline. Any FTSE 350 company that has female representation of 30% or less on its board and/or of 25% or less in its executive committee (and its direct reports) will receive a red top. Any FTSE Small Cap company that has female representation of 30% or less on its board and/or of 25% or less in its executive committee (and its direct reports) will receive an amber top.

• Employees, customers and the community: Investors will expect listed companies to provide more detail on how their boards responded to stakeholder views and took account of these views in their decision-making processes. In particular, listed companies need to explain in more detail how they are engaging with their employees and which of the four workforce engagement options set out in the UK Corporate Governance Code (see Provision 5) have been adopted.

• Transparency and accountability: Investors will expect audit committees to explain the steps taken to ensure a high quality audit and will pay close attention to listed companies paying executive bonuses which have been in receipt of taxpayer support (e.g. furlough), or as a result of windfall profits related to COVID-19.

"A company which neglects to understand its impact on people and the planet and doesn’t think about the long-term changes to the communities it serves is unlikely to be making sound judgements on the risks and opportunities it will face as a business." Good Stewardship Guide 2021 (page 5). https://cdn.roxhillmedia.com/production/email/attachment/850001_860000/725ea02f31cc7546781c56bf0a7b5706f5a1ac36.pdf

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