On November 16, Glass Lewis released its 2024 U.S. Benchmark Policy Guidelines. The guidelines provide a detailed overview of the key policies Glass Lewis will apply for shareholder meetings held in 2024.

This two-part series discusses ESG-related updates to the guidelines. In this post, we discuss changes relating to board oversight of ESG matters.

Board oversight of environmental and social issues

The 2024 guidelines continue to reflect Glass Lewis’ position that the board plays an important role in overseeing environmental and social risks. Examples of these risks cited in the guidelines include climate change, human capital management, diversity, stakeholder relations and health, safety and the environment.

The 2024 guidelines expand on 2023 expectations, indicating that responsibility for oversight of environmental and social issues should be formally designated and codified in the appropriate board committee charters or other governing documents. However, Glass Lewis leaves it up to each company to determine the best structure for effective oversight, i.e., specific directors, the entire board, a separate committee or combined with the responsibilities of an existing committee.

For Russell 3000 companies and selected other companies, Glass Lewis will review their overall governance practices and identify which directors or board-level committees have been charged with oversight of environmental and/or social issues. Glass Lewis will generally recommend voting against the governance committee chair of a Russell 1000 company that does not provide explicit disclosures concerning the board’s role in overseeing environmental and social issues. This policy remains unchanged from 2023.

The 2024 guidelines also indicate that, when evaluating the board’s role in overseeing environmental and social issues, Glass Lewis will examine committee charters and governance documents to determine whether the company has codified and maintained a meaningful level of oversight of and accountability for its material environmental and social impacts.

Board accountability for climate-related issues

Glass Lewis views climate risk as a material risk for all companies. The guidelines indicate that companies whose greenhouse gas emissions represent a financially material risk should give additional consideration to these risks and make enhanced disclosures, including how the risks are being mitigated and overseen.

The guidelines indicate that, beginning in 2024, Glass Lewis will carefully examine the climate-related disclosures of S&P 500 companies with material exposure to climate risk stemming from their own operations, as well as the disclosures of other companies where it believes emissions or climate impacts or related stakeholder scrutiny represents an outsized, financially material risk.

Relevant S&P 500 companies generally will include those in the following Sustainability Accounting Standards Board-defined industries:

  • agricultural products;
  • air freight & logistics;
  • airlines; chemicals;
  • construction materials;
  • containers & packaging;
  • cruise lines;
  • electric utilities & power generators;
  • food retailers & distributors;
  • health care distributors;
  • iron & steel producers;
  • marine transportation, meat, poultry & dairy;
  • metals & mining; non-alcoholic beverages;
  • oil & gas;
  • pulp & paper products;
  • rail transportation;
  • road transportation;
  • semiconductors; and
  • waste management.

Previously, this policy applied only to the largest, most significant emitters.

Glass Lewis will assess whether these companies have made disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures. Glass Lewis also will assess whether the companies have disclosed explicit and clearly-defined board oversight for climate-related issues.

If Glass Lewis determines that either of these disclosures are deficient, it may recommend voting against the chair of the committee (or board) charged with climate oversight or, if no committee has been charged with oversight, the chair of the governance committee. Glass Lewis may extend its recommendation to additional members of the responsible committee if the committee chair is not standing for election due to a classified board, or based on other factors, including the company’s size, industry and overall governance profile.

Board oversight of cyber risk

Glass Lewis also views cyber risk as a material risk area for all companies. The 2024 guidelines enhance Glass Lewis’ expectations with respect to company responses to cyber-attacks.

As a material risk area, the guidelines indicate that companies should provide clear disclosure of the role of the board in overseeing cybersecurity issues. However, if a company has not experienced a material cyber incident, Glass Lewis will generally not make voting recommendations on the basis of the company’s oversight of cyber-related issues or related disclosures.

If cyber-attacks have caused significant harm to shareholders, Glass Lewis will closely examine the board’s oversight of cybersecurity, along with the company’s response and disclosures. Further, the guidelines indicate that shareholders can reasonably expect to receive periodic updates on the company’s progress towards remediation.

According to the guidelines, these updates generally should at least include details as to when the company has fully restored its information systems, when it has returned to normal operations, what resources the company is providing for affected shareholders and other relevant information. The updates however are not expected to publicly reveal specific and/or technical details that could impede the company’s response or remediation or that could assist threat actors.

If Glass Lewis is not satisfied with the board’s oversight or the company’s response or disclosures relating to cybersecurity-related issues, the guidelines indicate it may recommend voting against appropriate directors.

Earlier this year, the SEC adopted new cybersecurity disclosure requirements. These are discussed in an earlier Ropes & Gray alert.

The next post

Tomorrow’s post will discuss Glass Lewis’ expectations on board diversity.