Is Your Board at Risk? State Street’s Proxy Voting Changes on Climate Change and Diversity Disclosures Are Big News for Boards
With over $4 trillion in assets under management, State Street holds a position in nearly 80% of all U.S.-based companies listed on the NYSE and NASDAQ1. That’s why State Street’s recent voting changes are a big deal for almost all U.S. corporate issuers.
While BlackRock may be the first and loudest in vocalizing its expectations related to ESG, State Street tends to swoop in with a plan of action. Earlier this year, State Street’s CEO Cyrus Taraporevala announced State Street’s two priorities for 2022 – “to support the acceleration of the systemic transformations underway in climate change and the diversity of boards and workforces.” Following suit, the Boston-based institution updated its proxy voting guidelines to paint a more detailed picture of actions the institutional investor may take this proxy season.
To summarize, State Street has heightened its expectations for companies. It wants more data and oversight, and it wants to see that now. State Street is using the S&P 500 and S&P/TSX Composite companies as a starting point for holding companies to higher disclosure standards.
Below are two of the most notable enhancements in State Street’s proxy voting guidelines.
Climate Change
State Street said it may vote against the independent board leader at S&P 500 and S&P/TSX Composite companies that do not to provide sufficient disclosure aligning with TCFD, which includes board oversight of climate-related risk and opportunities, Scope 1 and 2 greenhouse gas emissions, and emission reduction targets.
Essentially, if a company does not respond to all four pillars under TCFD, State Street may vote against the independent board leader. Furthermore, the institution will have questions for companies that lack TCFD reporting. Alongside the CEO Letter, State Street released guidance including questions – categorized by the TCFD pillars – on questions it may ask companies during engagement. For more information on the questions, see the Guidance on Climate-related Disclosures.
Diversity
Starting this year, State Street said it may vote against the Compensation Committee Chair at S&P 500 companies that do not disclose their EEO-1 reports.
State Street has been vocal about companies increasing board diversity, but now it is revealing it will next focus on diversity across the enterprise. For additional insight on how State Street recommends companies to approach board-level and workforce diversity disclosures, see the Guidance on Diversity Disclosure Practices.
How These Changes Can Affect You
Is State Street one of your shareholders? If not, is State Street on your investor targeting list? If the answer to either question is yes, it might be time to review your climate change and diversity disclosures. With a tool like ESG Infinite, you can see how your peers and other companies are disclosing in alignment with TCFD and the various approaches companies take to show EEO-1 reports and diversity metrics. ESG Infinite gives you access to best practices and guidance on how to develop strong ESG disclosures.
1 State Street Corp 13F, Report for 12/31/2021