Climate change and diversity remain biggest concerns for investors ahead of AGM season

Climate change and diversity will be the most pressing issues for investment managers during this year’s AGM season, according to the new expectations on companies issued by the Investment Association (IA).

With climate change presenting “one of the biggest risks to the long-term sustainability of a company”, investment managers will be looking for businesses to take immediate action, the IA reported, explaining how climate change will impact them and how they are mitigating the risk.

IA encouraged firms to disclose their transition plans to net zero ahead of them being mandated by government.

This year, the Institutional Voting Information Service (IVIS) will give an ‘amber-top’ warning for all companies that do not make disclosures against all four pillars of the Task Force on Climate-Related Financial Disclosures (TCFD).

Diversity also continues to be a priority area for investment managers, with the IVIS to issue its strongest warning, a ‘red top’, for the first time where FTSE 100 companies fail to meet the Parker Review target of having one ethically diverse board member.

It will issue an ‘amber top’ to FTSE 250 companies that do not disclose the ethnic diversity of their boards or do not have an action plan to achieve the Parker Review targets by 2024.

In 2022, IVIS will red top FTSE small cap companies where women represent 25 per cent or less of the board and 25 per cent or less of their Executive Committee, building on its existing approach which targets the FTSE 350 and expects women to represent 33 per cent of the board.

Investment Association director of stewardship and corporate governance, Andrew Ninian, commented: “Investment managers want to continue to support companies to deliver long-term, sustainable returns of behalf of savers and pensioners up and down the country.

“Climate change and the transition to net zero is not an issue which can be left for future management teams or boards, investors wish to see the actions the current leadership will be taking, and investment will be watching closely this AGM season to ensure they are doing just that.

“While good progress has been with greater female representation on boards and in senior leadership across the FTSE, investment managers now want to see this positive momentum include ethnic minority representation on boards and are calling on all FTSE 100 companies to meet the Parker Review target this year.”

The Shareholder Priorities build on the Principles of Remuneration, published in late 2021, which outline investment managers' expectations on company executive pay and pensions.

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