Consistent with our fiduciary duty to preserve long-term value for our clients, State Street Global Advisors has incorporated climate change as a core stewardship priority within our Asset Stewardship program for over nine years.
Our climate stewardship efforts are built around three pillars: proxy voting, company engagement, and thought leadership. As long-term investors, our approach is focused on value rather than values and has remained grounded in our view that managing climate-related risks and opportunities is a key element in maximizing long-term risk-adjusted returns for our clients. We have held over 1,100 engagements with global companies on climate and evaluated hundreds of climate-related proposals over time. Through our thought leadership, we provide both transparency to the market on our views and guidance for companies on our disclosure expectations. Through our engagements, we better understand how companies are effectively managing and disclosing climate-related risks and opportunities and, for companies that have adopted a climate transition plan, how they are preparing for the low-carbon transition, including their transition plans, decarbonization efforts, and capital allocation strategies. As our climate stewardship efforts evolve, we are committed to thoughtful engagement, maintaining our disciplined approach to proxy voting, and serving as pragmatic partners to companies.
Reflecting our view that managing climate-related risks and opportunities is a key element in maximizing long-term risk-adjusted returns for our clients, we have encouraged our portfolio companies to report in accordance with recommendations of TCFD. During the 2022 proxy season, for the first time we began taking voting action against companies in the S&P 500, S&P/TSX Composite, FTSE 350, STOXX 600, and ASX 200 indices where companies failed to provide sufficient disclosure regarding climate-related risks and opportunities related to that company, or board oversight of climate related risks and opportunities, in accordance with the TCFD framework. We voted against directors at over 150 companies in 2022.
1Source: State Street Global Advisors, as of December 31, 2022
The total number of climate-related proposals (including shareholder and management Say on Climate proposals) we voted in 2022 rose from 105 during 2021 to 155 in 2022. While a historic number of climate-related shareholder proposals were introduced during the 2022 proxy season, average investor support for climate-related proposals declined. Our support decreased slightly by 5% compared to last year given the overall targeting and the prescriptive nature of certain proposals. Our approach to voting has remained consistent over the past few years as demonstrated by our voting record. Further information can be found in our Q2 2022 Asset Stewardship Activity Report.
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 and opportunities.
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.
Our engagements center on how companies are both managing climate risk and addressing climate as an opportunity, and have made progress with companies’ aligning with our relevant disclosure and oversight expectations. Through our conversations with company management and boards, we aim to understand how companies are managing and overseeing related risks and opportunities and financial planning processes. Through engagement, we seek to foster constructive, long-term relationships with issuers.
Source: State Street Global Advisors, as of December 31, 2022
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 Network:
We conduct engagement campaigns to help inform our evolving perspectives on priority areas and disclosure expectations.
In 2023, we published our Guidance on Climate Related Disclosures to provide transparency on the core criteria we expect companies to address when developing these plans. Our role is not to manage companies or dictate their strategies and, as long-term holders of capital on behalf of our clients, we focus on working constructively and seek disclosure to better understand each company’s approach. In 2022, we conducted 90 in-depth engagements with companies across sectors in our portfolio, including high emitters, to discuss their strategies and alignment with our disclosure and oversight expectations.
In April 2021, 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. As a signatory, engagement with our investee companies serves as a primary lever in delivering on our long-term commitments. In April 2022, we announced an engagement target, which seeks to achieve that at least 70% of financed emissions in material sectors are either assessed as net zero, aligned with a net zero pathway, or the subject of direct or collective engagement and stewardship actions. We will aim to increase this ratio to at least 90% by 2030 at the latest as we continue to enhance our climate stewardship efforts.
We believe the journey to a net-zero emissions world is complex and will require tremendous efforts from both the private and public sectors to achieve an effective transition that is orderly and just. As a fiduciary and steward of our clients’ assets, we seek to ensure that the companies they are invested in today can deliver strong financial performance in the future, including in a carbon-constrained world. Our role is not to manage companies or dictate their strategies and, as an index-based investor, divestment is not an option. As long-term holders of capital on behalf of our clients, we focus on working constructively with companies and seek disclosure to better understand each company’s approach.
To better serve our clients, in April 2021, we took the important step of joining the Net Zero Asset Managers initiative, making a pledge to reach net zero portfolio emissions by 2050. In 2022, we announced our interim targets to reduce financed Scope 1+2 carbon emissions intensity 50% by 2030 relative to a 2019 baseline at a portfolio level. State Street Global Advisors also published our first TCFD report.
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.
UN PRI 2020 Leaders’ Group
We are proud to be among the 20 asset managers named to the 2020 Leaders' group for climate reporting.
Investing involves risk including the risk of loss of principal.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
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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The views expressed in this material are the views of Asset Stewardship Team through the period ended 12/31/2022 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected..
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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