US pension fund’s 2022 voting strategy will hold board members accountable.
The California State Teachers’ Retirement System (CalSTRS) educator-only pension fund will oppose corporate directors moving too slowly to achieve board diversity or significantly address climate change, according to its 2022 voting strategy.
Following its previous commitment to better reflect the diversity of its members in its investment strategies, during the 2022 voting season CalSTRS will vote against the entire board of directors of companies without at least one woman on the board and against directors on board nominating committees if companies don’t have at least 30% women board members.
The pension fund will further vote against nominating and governance committee members of companies in the Russell 1000 Index that fail to disclose the skills and diversity characteristics of their board members.
CalSTRS’ commitment to achieving net zero greenhouse gas (GHG) emissions by 2050 or sooner has heightened the asset owner’s scrutiny of investee companies’ decarbonisation targets and performance. The fund was previously under pressure to divest from carbon-intensive oil and gas companies but, like other asset owners, CalSTRS is choosing to engage, with divestment serving as a last resort.
This year, investee companies are expected to publish reports in line with the Task Force on Climate-related Financial Disclosures (TCFD), disclosing, at a minimum, their Scope 1 and 2 emissions. Failure to do so will result in a vote against corporate directors.
CalSTRS will also vote against directors of companies that haven’t set appropriate decarbonisation targets, voting in favour of shareholder proposals demanding corporates take meaningful action to ensure net zero, such as setting science-led interim emissions reduction goals.
It is expected that US companies’ performance on disclosing and reducing Scope 3 emissions will be a point of contention during the 2022 proxy voting season.
Recent analysis conducted by US shareholder advocacy group As You Sow noted that 110 out of 529 ESG resolutions proposed by shareholders of US firms this year are focused on climate-relate themes.
“We are sending a message that corporate directors must meet high standards in the critical areas of board diversity and climate change,” said Aeisha Mastagni, Portfolio Manager of Sustainable Investment and Stewardship Strategies at CalSTRS. “If necessary, we will support a change in leadership to meet these standards.”
As of 31 May, 2021, CalSTRS manages US$306.7 billion in assets.
Social and climate-related themes already underpin a number of asset owners’ voting strategies.
Norges Bank Investment Management (NBIM), which manages Norway’s US$1.1 trillion sovereign wealth fund, announced in April 2021 that it would vote against boards with fewer than two women, as part of its 2020-2022 strategy.
If engagement and voting fails to promote positive change amongst investee companies, NBIM has demonstrated its willingness to divest. The firm’s 2021 ‘Responsible Investment’ report highlighted that 35 of its 52 divestments that year related to poor tax transparency, anti-corruption and human rights abuses.
UK pension funds Border to Coast Pensions Partnership and Railpen have published their voting and engagement priorities for this year.
Border to Coast Pensions Partnership, which acts as a steward of £34 billion in partner funds’ assets, said it would target four environmental and social themes through its engagement and voting: low-carbon transition, waste and water management, social inclusion and labour management, and diversity of thought.
To hold itself accountable to its members, Railpen published a review of its 2020-2025 sustainable engagement strategy to end-beneficiaries. Its focus areas include the climate transition and ensuring a sustainable workforce.