State Street Global Advisors (SSGA), one of the world’s largest investment managers, announced the focus areas for its asset stewardship program for 2022, with climate change and diversity issues at the top of its priority list. In a letter to portfolio company CEOs, SSGA President and CEO Cyrus Taraporevala details outlined the investment manager’s expectations for boards on these issues, along with the firm’s expected engagement approach for the upcoming year.
According to the letter, events over the past year, particularly the COP26 conference and the continuing pandemic, have brought issues of corporate resiliency into sharper focus, from supply chain disruptions, to the systemic risks of climate change and gender, racial, and ethnic inequity. Meanwhile, company boards are increasingly tasked with navigating historic shifts as the world moves toward a low-carbon and more diverse and inclusive future, and capital markets transition to a more sustainable global economy. Taraporevala writes:
“For us, these issues are matters of value, not values — opportunities for companies to mitigate downside risk, innovate, and differentiate themselves from competitors. To that end, we view the use of our voice and our vote as central to our fiduciary responsibility to our clients to maximize long-term risk-adjusted returns.
“For these reasons, our main focus in 2022 will be to support the acceleration of the systemic transformations underway in climate change and the diversity of boards and workforces.”
One of the key expectations set by SSGA this year is a requirement for disclosure from companies aligned with Task Force on Climate-related Financial Disclosures (TCFD) recommendations, including reporting on board oversight on climate-related risks and opportunities, Scope 1 and 2 greenhouse gas (GHG) emissions, and targets for emissions reduction.
SSGA stated that it will take voting action against companies that do not meet these disclosure expectations.
In the letter, SSGA also announced plans for an engagement campaign targeting the most significant emitters in its portfolio encouraging disclosures on key areas including decarbonization strategy, capital allocation, climate governance, and climate policy.
On the diversity front, SSGA announced that it will expand its policy requiring companies to have at least one woman on their boards to every holding in its portfolio globally. For companies in major indices in the US, Canada, UK, Europe, and Australia, SSGA will expect boards to be comprised of at least 30% women directors beginning in the 2023 proxy season.
Additionally, SSGA said that it will take voting action against directors of S&P 500 and FTSE 100 companies that do not have a person of color on their board, those who fail to disclose the racial and ethnic diversity of their boards, and S&P 500 companies that do not disclose EEO-1 reports, which contain demographic workforce data, including data by race, ethnicity, sex and job categories.
In his note to CEOs, Taraporevala wrote:
“While the past two years have brought tremendous change with global supply chain disruptions, an unpredictable and mutating virus, and a growing need to chart a pathway to net zero, we have always believed that when companies embrace transitions as opportunities for innovation and differentiation, shareholders stand to benefit. We hope that you and your fellow directors continue to oversee the increasingly material dimensions of ESG, alongside more traditional strategic and financial issues. As long-term investors, we share your goal of creating more resilient, sustainable, and inclusive companies.”
Click here to see the SSGA letter to CEOs, and the firm’s guidance on climate-related disclosures, disclosure expectations for climate transition plans, and guidance on diversity disclosure and practices.