ISS Scores Companies on Environmental, Social Disclosures

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By Andrea Vittorio

Proxy adviser Institutional Shareholder Services Inc. is getting into the business of rating corporate reporting on issues such as climate change and human rights.

The firm, which already looks at the quality of company disclosures on executive pay and other governance issues, said Feb. 5 it’s now scoring companies on what they do, and don’t, disclose on environmental and social topics.

Its move into environmental, social, and governance (ESG) ratings comes after a string of ISS acquisitions in the space, including that of sustainable investment adviser Ethix and most recently South Pole Group’s carbon data and analytics.

Marija Kramer, who heads ISS-Ethix, the firm’s ESG investment arm, said it’s driven by increased investor interest in how companies are managing environmental and social risks. Investor pressure is also making companies more interested in the scores they receive from other raters like MSCI Inc. and Sustainalytics BV.

Targeting Companies

“Investors are looking at, in some cases, their quite vast portfolios and trying to identify candidates for shareholder engagement,” Kramer told Bloomberg Law.

She said the new ISS scores could help investors target companies that lack transparency or those with low-quality disclosure. Investors could also use the scores to help decide how to vote on pay packages, director elections, and other matters at companies they own.

Starting later this month, top-level environmental and social scores will be added alongside governance scores to the company reports ISS sends to investors that subscribe to its voting advice. The scores won’t impact its benchmark voting recommendations, but the proxy adviser’s roughly 400 clients with customized voting policies could factor them into their decisions.

ISS will initially score about 1,500 companies in energy, materials, and other industries that are viewed as most exposed to environmental and social risks. It plans to expand its coverage to more than 5,000 companies globally.

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