State Street Global Advisors CEO Cyrus Taraporevala
got straight to the point in his recent letter to portfolio companies: the firm’s “main stewardship priorities for 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity.” In 2020, State Street highlighted its development and implementation of the
R-Score (an ESG risk scoring system based on the Sustainability Accounting Standards Board framework) and noted it would vote against the bottom 10% of boards that did not clearly articulate a plan to improve. The 2021 letter highlights plans for improved communications with underperforming companies, perhaps indicating some flexibility given the COVID-19 pandemic. The letter highlights the firm’s ongoing, focused approach to ensuring companies address climate risk and new voting policies related to gender and ethnic diversity:
- In 2021, State Street will vote against the Chair of the Nominating & Governance Committee at S&P 500 and FTSE 100 companies that do not disclose the racial and ethnic composition of their boards;
- In 2022, will vote against the Chair of the Compensation Committee at S&P 500 companies that do not disclose their EEO-1 report; and
- In 2022, vote against the Chair of the Nominating & Governance Committee at S&P 500 and FTSE 100 companies that do not have at least 1 director from an underrepresented community.
BlackRock’s
2021 Investment Stewardship Expectations noted a focus on similar themes, though the tone tends toward engagement rather than oppositional voting. The guidelines ask companies to demonstrate the following:
- Board and workforce diversity
- Strengthened focus on ethnic and gender diversity on large company boards, potentially voting against boards not exhibiting diversity in 2022.
- Asking companies to disclose the diversity of their workforce, including demographics such as race, gender, and ethnicity through the disclosure of EEO-1 data, and actions to advance DEI and support an engaged workforce.
- Stakeholder management
- Report on how companies determined their key stakeholders and considered their interests in business decision-making.
- Beginning in 2021, BlackRock is “prioritizing a focus universe of approximately 150 companies whose business practices may have resulted in adverse impacts or reflect insufficient management of ‘social’ sustainability risks”.
- Climate risk
- Disclose a business plan aligned with the goal of limiting global warming to well below 2 degrees Celsius consistent with a global aspiration of net zero GHG emissions by 2050.
