Investment Association statement on shareholder priorities

The Investment Association (IA) has published a document discussing its listed company shareholder priorities for 2021.

The IA first published its shareholder priorities in January 2020. It focused on four key areas: climate change, audit quality, stakeholder engagement and employee voice and diversity (see our earlier blog post). The 2021 priorities document provides insights into the progress made by companies on these issues in 2020 and investors’ expectations for 2021. It also sets out how the Institutional Voting Information Service (IVIS), which is part of the IA, will analyse these issues for companies with year-ends on or after 31 December 2020.

• Climate change – All companies in a high-risk sector (being financials, energy, transportation, materials and buildings, and agriculture, food and forest products) that do not address all four pillars of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) (being governance, risk management, strategy, and metrics and targets) will receive an amber top from IVIS. IVIS will also highlight to investors those FTSE companies that include a statement in their annual report that the directors have considered the relevance of material climate-related matters when preparing and signing off the company’s accounts.
• Audit quality – The IA says that the quality and robustness of the audit is essential for investors but notes that, in practice, audit committee reports do not adequately demonstrate how the audit committee has challenged management’s judgments and do not describe how the audit committee has assessed the quality of the audit. IVIS will continue to focus on these issues in 2021.
• Stakeholder engagement and employee voice – The IA notes that the Covid-19 pandemic has significantly impacted companies and their stakeholders. It says that investors expect companies to make quality disclosures outlining the approach taken to engaging, communicating and supporting the company’s stakeholders during the disruption caused by the pandemic and that this should include how the board reflected the views of their stakeholders in key decision making.
• Diversity – IVIS will issue an amber top to any FTSE 350 companies that do not disclose either the ethnic diversity of their board or a credible action plan to achieve the Parker Review targets (see our earlier blog post). IVIS will also issue a red top to any FTSE 350 company that has female representation of 30% or less on their board, or female representation of 25% or less in their Executive Committee and its direct reports. FTSE Small Cap companies will receive an amber top in those circumstances.