Climate change is a key systemic risk, representing both a strategic and business challenge for all companies in our portfolios. Since 2014, we have prioritized climate change as a core theme of our stewardship activities.
We believe climate change poses a systemic risk to all companies in our portfolios. The Task Force for Climate-related Financial Disclosures (TCFD) framework has become table stakes for any climate-related discussion, with investors increasingly using this new information to tilt, or even transform, their portfolios for the future. To drive broad climate action and TCFD adoption in the market, we will begin taking voting action in 2022 against companies in major indices in the US, Canada, UK, Europe, and Australia, if companies fail to meet our climate-related disclosure expectations.
As is typical across ESG issues, we will ﬁrst approach our climate-related disclosure expectations with companies through engagements. If we encounter laggards that are not making suﬃcient progress as a result of our engagements, we will consider taking action using our votes, either by supporting relevant shareholder proposals or voting against directors at an upcoming shareholder meeting.
Our Voting Record on Climate-related Shareholder Proposals
There was a signiﬁcant increase in the number of climate-related shareholder proposals submitted to our portfolio companies during 2021 with over 100 proposals going to vote (compared to 58 in total in 2020 and 47 in 2019). We supported 49% of climate-related proposals in 2021. Annually, we review and vote every climate-related proposal in our portfolio. We also endeavor to engage with the proponents of shareholder proposals to gain additional perspective on the issue, as well as with companies to better understand how boards are managing relevant risks.
We continue to advocate for enhanced disclosure aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and in 2021 we supported 54% of proposals requesting GHG emissions reduction targets. For more information on our approach to climate-related proposals in 2021, see our Q2 2021 Stewardship Activity Report.
Climate proposals vary in their content and intent as well as in their approach to advocating for a particular change in disclosure or practice. Some markets feature ‘binding’ shareholder proposals which provide companies with less ﬂexibility in implementing the expectations of majority supported proposals. We continue to generally oppose proposals that require companies to make speciﬁc operational changes such as a transition to renewable energy within a deﬁned timeframe. We ﬁnd the actions requested by these resolutions to be overly prescriptive.
In 2021, we conducted 254 climate-focused engagements, a 72% increase compared to the previous year (148 in 2020), reﬂecting our increased focus on this topic. Our engagements centered on how companies are both managing climate risk in their operations and addressing climate as an opportunity, and have been successful in driving improvement in both disclosure and long-term climate strategy.
Our engagement approach leverages the four dimensions of the TCFD recommendations:
In January 2022, we published our Disclosure Expectations for Effective Climate Transition Plans. We see this as the first step in ensuring we — and the broader investor community — receive the information necessary to assess each company’s preparedness for the transition to a low-carbon economy.
In 2022, we will launch an engagement campaign on climate transition plan disclosure targeting significant emitters in carbon-intensive sectors. Through our engagements, we will aim to better understand climate transition plans and strategies, and gain insight on each company’s unique set of climate-related risks and strategic opportunities presented by the transition.
The Climate Action 100+ initiative seeks three central outcomes through engagement with companies on climate change: improving governance of climate change, reducing emissions, and strengthening climate-related disclosure. These goals are consistent with what State Street has advocated for in our company engagements, through our thought leadership, and, where needed, communicated through our voting process. The alignment between our climate stewardship approach and that of Climate Action 100+ is evident in our advocacy of the TCFD and Sustainability Accounting Standards Board (SASB) frameworks, which both are in line with the spirit of Climate Action 100+’s eﬀorts.
We believe climate change is one of the biggest risks in investment portfolios today. These risks impact almost all segments and industries – not just the obvious polluters. However, with climate risk comes tremendous investment opportunity as the economy reworks against the impact of climate change.
Climate-related Reporting and Commitments
Last April, we joined the Net Zero Asset Managers Initiative to ensure our portfolios reach net-zero greenhouse gas emissions by 2050 or sooner and set interim targets for 2030. We will be announcing our plans including our interim targets, Investor Climate Action Plan, and our State Street Global Advisors TCFD report by April 2022. We also call on asset owners to develop a universal disclosure requirement for all companies of a certain size in their portfolios — irrespective of whether they are publicly-traded or privately-held, to avoid the pernicious effects of ‘brown-spinning.”
UN PRI 2020 Leaders’ Group
We are proud to be among the 20 asset managers named to the 2020 Leaders' group for climate reporting.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
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