Investor and Proxy Advisor guidelines for voting on ESG measures in executive remuneration

In recent years, Guerdon Associates and the GEGN Group has published a research report on global trends on the use of environmental, social and governance (ESG) measures in global executive remuneration (see HERE). We have released a series of articles in recent months prior to publishing the full research outcomes (see prior research HERE, HERE, HERE and HERE).

In this article we examine the approaches of proxy advisors, Australian investors and international investors to linking ESG measures in executive remuneration, as reflected in their most recent proxy voting guidelines.

Proxy advisors

Three of the four major proxy advisors describe their general approach to ESG measures. (Consistent with their light-touch voting guidelines, Ownership Matters is silent on this topic.)

The Australian Council of Superannuation Investors (ACSI) appears to be the most supportive of the proxy advisors, actively encouraging financial measures to be “supplemented” by ‘non-financial’ measures. ACSI also supports the recommendations of the Task force for Climate-related Financial Disclosures, including linking climate-related metrics to executive remuneration.

CGI Glass Lewis appears to be amenable to the incorporation of ESG measures, provided there is sufficient disclosure and a clear link to the company’s overall strategy. That said, CGI Glass Lewis questions whether certain ESG measures need to be incentivised at all.

ISS is the most sceptical proxy advisor on ESG measures. As a starting point, ISS expects financial measures to represent at least half of the STI opportunity and for non-financial measures to be sufficiently rigorous. In addition to its stated policy, in news media ISS representatives have consistently expressed dissatisfaction about executives being rewarded for “day job” activities.

Australian investors

We reviewed the websites and proxy voting guidelines (where available) of 20 of the top Australia-domiciled investors with domestic-focussed investment strategies. Remarkably, not a single Australian investor has publicly disclosed their expectations, preferences, or approach to evaluating ESG measures within executive remuneration.

Guerdon Associates observes that Australian investors’ public voting guidelines generally lack detail in any case, reflecting a “principles based” approach that in practice affords fund managers maximum flexibility to determine vote positions. On the one hand, this gives ASX-listed companies room to experiment with ESG measures. On the other hand, the policy vacuum means domestic investors are giving companies enough rope to hang themselves with, should investors ultimately disagree with a novel approach to these measures.

International investors

We reviewed the public proxy voting guidelines of 30 of the top European and North American-domiciled investors with global investment portfolios, including the top 10 global fund managers by FUM (as of 31 March 2022). As a group, the proxy voting guidelines of these investors are substantially more detailed and prescriptive than their Australian counterparts. This can be attributable to several factors, including but not limited to, a regulatory and historically driven culture that favours rules-based (rather than principles-based) decision making, operational imperatives to ensure consistency in decision making, and resource constraints that inhibit “case-by-case” analysis where ESG analysts must vote on thousands of AGMs during each proxy season.

Nineteen of the international investors disclosed their approach to ESG measures. Most of these investors were headquartered in Europe, which reflects the leadership that region has played on consideration of ESG issues within the economy.

We observed a variety of approaches, with a minority of asset managers detailing explicit requirements for ESG measures to be incorporated within remuneration frameworks. The most aggressive investor in the cohort is Amundi, a French asset manager—its policy language is activist in tone, stating they “will be vigilant on the inclusion of ESG criteria in the variable remuneration” [emphasis added]. Other investors with explicit requirements include AllianzGI (for European large caps only), Aviva Investors, AXA IM, BNP Paribas, Fidelity International, Legal & General, NN IP, Schroders and UBS (for a subset of oil and gas companies).

The policy language of other global asset managers was softer in tone. Several asset managers, including Abrdn, APG and HSBC, “encourage” investee companies to incorporate ESG measures. Other asset managers are more circumspect in their views, including BlackRock, Dimensional Fund Advisors, M&G and Vanguard. Still others do not directly disclose their approach, describing instead their approach to shareholder proposals calling for ESG measures to be incorporated within executive remuneration frameworks. This last cohort includes AllianceBernstein and Natixis.

Board checklist for ensuring investor support for ESG incentives

Several themes emerge from the voting guidelines of these investors:

  • Malus and clawback – mismanagement of ESG matters can be grounds for triggering malus and clawback provisions.
  • Size – investors generally have greater expectations for large cap companies, potentially reflecting perceptions of materiality within their portfolios.
  • Sector – investors generally have higher expectations for climate-related measures for companies with higher levels of climate exposure, also reflecting perceptions of materiality.
  • Rigour – investors generally expect for ESG measures to be quantifiable and demanding.
  • Disclosure – investors generally expect for there to be sufficient disclosure relating to ESG measures for them to be able to assess their appropriateness.


Where does this leave ASX-listed companies? As this review indicates, there is a wide range of disclosed approaches to ESG measures amongst investors and proxy advisors, as well as a fair amount of uncertainty as well. Companies with European investors on their share register may have more flexibility to expand their use of ESG measures within executive remuneration, whereas companies for which ISS influences a substantial portion of the voting decisions on their register may need an active offshore shareholder engagement program to build support for ESG measures. And as with most remuneration-related considerations, companies will need to engage heavily with their domestic investors and ACSI to gauge levels of support for new ESG measures.

© Guerdon Associates 2024
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