California State Teachers’ Retirement System (CalSTRS) released a statement that it is cracking down on large companies without proper greenhouse gas emissions disclosures and board diversity. In an effort to enhance its strategy and address the risks that climate change poses to its global portfolio, it will use its voting power during proxy voting season, as global companies are holding their annual general meetings, according to a press release from the world’s largest educator-only pension fund with more than $300 billion in assets,
CalSTRS will focus on the boards of directors of the largest companies around the world and is paying particular attention to the companies emitting the highest levels of greenhouse gases, according to the release.
It expects all of its portfolio companies to provide minimum disclosures, including financial reports that align with the recommendations of the Task Force on Climate-related Financial Disclosures and include, at a minimum, the company’s direct emissions (scope 1) and indirect emissions (scope 2). CalSTRS stated in the release it will vote against directors at the largest global companies that do not provide this minimum level of disclosure.
“Without important disclosures, investors cannot appropriately manage risks and advance our commitments to achieving a net zero emissions portfolio,” said Aeisha Mastagni, a portfolio manager on CalSTRS’ Sustainable Investment and Stewardship Strategies team in a written statement.
While the risk of climate change impacts the investment portfolio broadly, CalSTRS recognizes the emissions related to its Public Equity Portfolio are concentrated in a subset of companies.
“Two hundred and fifty companies are responsible for 75% of the emissions in our Public Equity Portfolio,” said Mastagni. “We will continue to use our influence to ensure these high emitters—in multiple sectors—minimize risks and take advantage of the opportunities available to them to be successful in a low-carbon world.”
CalSTRS’ actions are guided by its Corporate Governance Principles and commitment to a net zero investment portfolio by 2050 or sooner.
In addition to advancing its net zero portfolio emissions pledge, CalSTRS will also continue its longstanding practice of evaluating the diversity of corporate boards of directors. (CalSTRS believes companies with diverse leadership have better decision-making processes because people from different backgrounds bring varied perspectives and insights, which often results in positive economic outcomes.)
In doing so, CalSTRS stated it will also vote against an entire board of directors that does not include at least one woman and against a board’s nominating and governance committee if at least 30% of its board members are not women. Furthermore, CalSTRS will vote against the nominating and governance committees of Russell 3000 companies that do not disclose their board members’ diversity characteristics.
It announced that companies in the Russell 1000 Index—the largest publicly traded U.S. companies—will be held to a higher standard this proxy season. “We not only expect disclosure of the diversity of board members, we want at least one board director from each of these Russell 1000 companies to be from a typically underrepresented population,” said Mastagni.
While CalSTRS’ strategies and engagement methods vary with each company within its broadly allocated investment portfolio, the goal is always the same: to influence long-term value creation and sustainable business practices for generations to come, which in return will help ensure California’s public educators have a secure retirement.
See CalSTRS’ Stewardship Priorities fact sheet and proxy voting records for more information.
By Staff Report