By Alexander J. May and Genevieve J. Essig
On November 17, 2011, Institutional Shareholder Services Inc. ("ISS") published the 2012 updates to its U.S. Corporate Governance Policy. The proxy voting guidelines in this document, which is reviewed and updated annually, influence how many major institutional shareholders vote on shareholder proposals and are monitored closely by all public companies. In its 2012 updates, ISS included specific policies regarding shareholder proposals related to hydraulic fracturing (also known as fracking), water issues, and workplace safety, as well as an updated recycling policy. ISS had previously used its existing General Environmental Proposals and Community Impact policy for shareholder proposals on hydraulic fracturing and water issues.
The most significant development is that ISS generally recommends a "For" vote on shareholder proposals requesting greater disclosure of a company's natural gas hydraulic fracturing operations. ISS reasoned that, given the high profile and the number of previous shareholder proposals on the subject [1], as well as the level of institutional investor support for such proposals [2], that "a specific policy on hydraulic fracturing-related proposals [was] warranted."
On the other hand, ISS makes a "case-by-case" voting recommendation regarding: (1) proposals to adopt a comprehensive recycling strategy; (2) proposals requesting that a company report on, or adopt a new policy on, water-related risks and concerns; and (3) requests for workplace safety reports, including reports on accident risk-reduction efforts. With respect to water issues, ISS notes that shareholder proponents are submitting proposals regarding water-related risks more frequently and that water risks are rising in profile. Similarly, ISS cited high-profile accidents in the oil and gas industry as driving recent shareholder proposals on workplace safety.
In sum, along with the Securities and Exchange Commission's guidance on disclosure of climate-related risks, environmental issues are likely to be a hot topic during the 2012 proxy season.
To view the full text of the 2012 Updates, click here.