Diversity and inclusion, climate change, executive compensation, SPAC transactions and shareholder activism are seen as top governance issues in 2021, Institutional Shareholder Services said in a report released Wednesday.
Some of the issues were highlighted by the events of 2020, including the COVID-19 pandemic and protests over racial justice and disparity.
On diversity, ISS found that investors have helped achieve progress when it comes to gender but not as much for racial and ethnic diversity. Less than 10% of Russell 3000 corporate boards lacked gender diversity, while 40% lacked racial or ethnic diversity, "and there is even less diversity in C-suites from which many directors are drawn," according to the report, "Top Governance and Stewardship Issues in 2021."
Corporate directors and executives will also be expected to explain any changes to executive compensation in response to the coronavirus pandemic's impact, and how they considered its impact on their workforces. Investors will be looking for those explanations in proxy statements, the report said.
More shareholder proposals and possible votes against directors failing to provide meaningful oversight of climate change-related material risks should also be expected, ISS said. Along with say-on-climate proposals, more shareholder requests are expected for companies to disclose transition plans in alignment with the Paris Agreement, and related corporate lobbying activity.
The growing interest in special purpose acquisition companies seen in 2020 "does not appear to be slowing down for 2021 and the trend could catch on in Europe this year. ISS provided vote recommendations on 61 U.S. SPAC IPOs, compared to 17 in 2019, and has already provided 14 so far this year. Still, the report said, "the M&A scene appears ripe for a correction."
Despite the pandemic dampening hedge fund activism in 2020, more than 50 proxy contests made it to ballots worldwide, and various ESG concerns could drive more contests, the report said.