ISS, the world’s largest proxy advisory firm, has announced two new developments that will change how it provides voting recommendations to investors: a new acquisition and the launch of the E&S QualityScore.
First, ISS has acquired EVA Dimensions for an undisclosed fee – a move that will provide its clients with ‘a cutting-edge holistic means of assessing and defining performance of their portfolio companies,’ ISS president and CEO Gary Retelny says in a statement.
EVA Dimensions is a business intelligence firm that measures corporate performance based on its own proprietary models, including the Economic Value Added (EVA) framework, PRVit and CPI, the corporate performance index ranking of financial excellence. In the past, ISS has used total shareholder returns as the primary benchmark for determining whether a company’s executive pay levels are reasonable. Last year, it expanded the data points it analyzed by considering return on invested capital and revenue growth.
The acquisition of EVA Dimensions suggests a move away from total shareholder returns for ISS. CPI is seen as a supplement or alternative, with 18,000 companies already tracked daily in the CPI database. Once the acquisition has closed, ISS will begin to integrate EVA Dimensions’ tools into its pay-for-performance assessments, which will likely be in time for the 2019 annual meeting season.
‘The yard stick for companies may change,’ an ISS spokesperson tells Corporate Secretary sister publication IR Magazine.
The proxy advisory firm also announced last week that it was launching a new environmental and social QualityScore, separating it from the existing governance QualityScore.
The E&S QualityScore will consider 380 environmental and social factors to give each company an overall score, as well as a breakdown of scores in eight categories:
- Management of environmental risks and opportunities
- Carbon and climate
- Natural resources
- Waste and toxicity
- Human rights
- Labor, health and safety
- Stakeholder and society
- Product safety, quality and brand.
The initial launch covers 1,500 companies across sectors ISS considers to be most exposed to E&S risks – such as the energy, materials, automotive and consumer goods industries. Each of the companies affected were contacted in November to be informed of the launch and to review the data ISS was considering.
ISS plans to roll out the E&S QualityScore to the remaining 18 industries it covers – encompassing a further 3,500 companies – in the second quarter of this year. The proxy advisory firm again intends to provide each company with the chance to review the data for inaccuracies before publishing the final scores.
The E&S QualityScore also factors into its assessment the various ESG disclosure recommendations, including those from the Global Reporting Initiative, Sustainability Accounting Standards Board and Task Force on Climate-related Financial Disclosures, according to the company.
‘With this launch, we are extremely pleased to respond to the growing demand from our institutional investor clients for high-quality data and analytics covering environmental and social topics,’ ISS COO Stephen Harvey says in a statement.