As proxy season begins this spring, the world’s leading shareholder advisors are targeting Canada’s public companies with new calls to oust directors of boards that fall short on gender diversity and climate accountability.

The guidelines, from U.S.-based Institutional Shareholder Services (ISS) and Glass Lewis, are part of a global wave of shareholder activism that aims to reshape some of the world’s most powerful companies.

Every year, investors in publicly listed companies get to file non-binding resolutions and vote on changes they want to see at the firms in which they hold assets. The period of annual meetings at which the voting takes place is broadly known as proxy season.

Investors are expecting even more activity from shareholders in the months ahead. “This season is going to be busy,” said Anthony Schein, director of shareholder advocacy at Toronto investor-advisory firm SHARE. “I also think it will be one where we build on the more innovative thinking from investors about ESG [environmental, social and governance] issues that have been developing for a while.”

As of Feb. 1, ISS, which claims many of the world’s leading institutional investors among its 3,400 clients, is advising shareholders of companies on the S&P/TSX Composite Index to vote for the removal of the chair of any board—or the chair of any board’s governance committee—where women make up less  than 30 per cent of its membership and which has no plan to reach that threshold by next year’s meeting.

ISS also wants shareholders of companies on the broader TSX index to vote against chairs of firms with zero women on their boards and no gender diversity policy.

It’s the first time the advisor is explicitly recommending investors vote against Canadian directors for not meeting the targets.

This is also the first proxy season in which Glass Lewis, which says its clients “include the majority of the world’s largest pension plans, mutual funds and asset managers, collectively managing over [US]$40 trillion in assets,” also now recommends voting against the board chairs or governance-committee chairs of all TSX-listed companies with fewer than two women directors on their board, and recommends voting against entire governance committees of boards with no women directors. Starting next year, Glass Lewis will follow ISS in requiring 30 per cent gender-diverse representation.

Neither ISS nor Glass Lewis responded to The Logic’s requests for comment.

Global shareholder activism has been growing in recent years, with investors pressing for an increasing number of ESG changes at public companies. In the U.S., support for proposed ESG changes hit a record last year, with 17 resolutions gleaning at least 70 per cent support, up from just two the year before. Six proposals received over 90 per cent support—a level of endorsement that was virtually unheard of until last year—including 97.9 per cent of shareholders voting in favour of a proposal to report on net-zero-emissions goals at General Electric.

While shareholder resolutions aren’t binding, they can influence policies and disrupt business as usual. A high-profile proxy fight last year between Canadian National Railway and British billionaire Chris Hohn—who slammed CN for a failed acquisition and underperformance—led to the ouster of CEO Jean-Jacques Ruest, and to Hohn’s firm TCI assuming two board seats.

Schein said the new guidelines for investors in Canadian issuers reflect mounting pressure from shareholders themselves—a view echoed by David Salmon, president of Toronto-based shareholder-advisory firm Laurel Hill. “Many institutions have been leading these efforts for three or four years now,” Salmon said, citing the 30% Club, a global campaign of chairs and CEOs pushing to have women occupy at least 30 per cent of all board seats.

“The formalization of these policies, I don’t think anyone should be surprised. This has been in the works for a while and you’ve either been a leader or a laggard. If you didn’t get it into play when this was initially introduced, there might be a bigger issue.”

Board diversity in Canada has improved since the Ontario Securities Commission introduced the “comply or explain” rule in 2015, requiring most TSX-listed firms to disclose the gender makeup of their boards and executive teams each year, as well as their policies around gender diversity. Since then, women’s board representation has doubled, from 11 per cent in 2015 to 22 per cent in 2021. But 18 per cent of companies on the index still have no women on their boards, and as of 2020, just 43 per cent of issuers had at least two women board members, leaving hundreds of firms short of Glass Lewis’ new diversity threshold and board chairs at risk of losing their seats.

ISS and Glass Lewis have also set new climate-related guidelines for this year’s proxy voting at all TSX-listed firms, though they’re less prescriptive than their diversity recommendations, focusing mainly on how boards take responsibility for large companies’ climate policies. At this point, the advisors are generally taking a case-by-case approach to recommending how shareholders should vote on climate-related resolutions.

The guidelines fit with investors’ growing demands for more transparency and action on the issues. In 2017 CPP Investments, Canada’s largest pension fund manager with over $550 billion in assets, introduced a policy to vote against chairs of boards of Canadian companies in which it invests that didn’t have any women directors, in a push to eventually get them to 30 per cent gender diversity.

The rule has been effective. In its first year, CPP Investments voted against 45 board chairs at companies with no women directors; the following year, the fund reported that nearly half of those companies had appointed at least one woman director. The fund manager has since expanded the rule to target boards with fewer than 30 per cent women in North America. This year, it will apply for the first time to  portfolio companies listed in New Zealand and South Africa.

Also starting this year, it’s asking all companies in which it holds a stake for climate-related risk disclosure and mitigation plans, and will “consider” voting against risk-committee chairs of those that don’t have them. “In addition, CPP Investments believes that directors who contribute to material ESG failures should be asked to resign promptly,” it said in a notice of the changes released last week.

Beyond the push from advisory firms and large asset managers, Canadian companies are facing a host of climate-related proposals filed by shareholders this year, with a particularly strong showing for “Say on Climate” resolutions, in which shareholders ask to approve firms’ environmental plans. Shareholders at all of Canada’s Big Six banks—which kick off Canada’s proxy season with their annual meetings next month—are calling for the financial institutions to put their climate-change plans to a shareholder vote every year. All of the banks are recommending against voting for the proposals.

Apart from gender diversity and climate proposals, Schein said SHARE has filed several resolutions on racial justice and working conditions at TSX-listed firms—issues commonly pressed by activist investors in the U.S., but rarely in Canada. The resolutions include calls for racial-equity audits evaluating whether and how business practices, products or policies might adversely impact racialized communities, with an emphasis on anti-Indigenous bias. It’s also filing a resolution at a firm calling for a report on how the company guarantees workers’ rights to unionize.

Salmon said companies should brace themselves for pressure on a broader range of ESG issues in the coming season. “What we’ll see this year is environmental and social issues hitting into everything,” he said, “and companies need to engage with their shareholders on these topics.”