Proxy adviser Institutional Shareholder Services (ISS) has recommended that shareholders of Toyota Motor Corp vote in favor of a resolution that calls for improved disclosure of the automaker’s lobbying activities related to climate change. ISS also expressed doubts about the independence of three out of four outside director nominees put forward by Toyota, although the automaker asserted that all candidates met the Tokyo Stock Exchange’s independence criteria.
This recommendation comes as Japan’s largest company faces mounting pressure from green investors and climate activists who have criticized Toyota for lagging behind its competitors in the adoption of all-battery electric vehicles (EVs). In particular, Danish pension fund AkademikerPension, Norway’s Storebrand Asset Management, and Dutch pension investor APG Asset Management have called on Toyota to commit to an annual review of climate-related lobbying to ensure it does not miss out on potential profits from the thriving EV market.
ISS criticized Toyota for insufficient disclosure of its lobbying activities and argued that shareholders would benefit from more information about the company’s direct, indirect, and grassroots lobbying efforts across different regions. However, the resolution faces significant obstacles as it requires a two-thirds majority, and Toyota’s shareholder base includes suppliers and other business partners.
While proxy adviser Glass Lewis did not support the resolution, citing Toyota’s responsiveness to shareholders, ISS remains resolute in its recommendation. Toyota, on the other hand, has set a target of selling 1.5 million all-battery EVs by 2026 and maintains that a range of power solutions, including hybrid and hydrogen fuel cell vehicles, are essential for achieving carbon neutrality.
ISS also raised concerns about the independence of three out of the four nominees for Toyota’s board, alleging that their affiliations with organizations like the International Paralympic Committee and the company’s primary lender, Sumitomo Mitsui Financial Group Inc, could compromise their impartiality. Toyota, however, defended the nominees, asserting that they meet the necessary criteria for objectivity, independence, and oversight.
While the resolution’s fate remains uncertain due to stringent voting requirements and Toyota’s stakeholder composition, ISS recommended voting in favor of the director nominees to prevent potential domination of the board by management. This situation underscores the growing significance of climate-related issues in corporate governance and the heightened scrutiny faced by automotive companies.