State Street Global Advisors has told its portfolio companies in Australia and worldwide to embrace transitions in climate change and diversity as opportunities in the year ahead.
In the firm’s annual letter to portfolio company boards, State Street Global Advisors president and CEO Cyrus Taraporevala said that businesses were facing a number of systemic risks including climate change and gender, racial and ethnic inequality.
“At State Street, we envisage our portfolio companies managing these threats and opportunities by transitioning their strategies and operations – enhancing efforts to decarbonise and embracing new ways of recruiting and retaining talent – as the world moves toward a low-carbon and more diverse and inclusive future,” he said.
Beginning in the 2022 proxy season, State Street said it expects companies in the ASX 100 and other major indices in the US, Canada, UK and Europe to align with climate-related disclosures outlined by the Task Force on Climate-Related Financial Disclosures (TCFD).
These include board oversight of climate-related risks and opportunities, total direct and indirect greenhouse gas emissions and targets for reducing emissions.
“With approximately one-third of companies in the S&P 500 still not providing these TCFD disclosures, we will start taking voting action against directors across applicable indices should companies not meet these disclosure expectations,” said Mr Taraporevala.
The firm plans to launch a targeted engagement campaign with the most significant emitters in its portfolio this year to encourage disclosure that aligns with its expectations on areas including decarbonisation strategy, capital allocation, climate governance and climate policy.
“Starting in 2023, we will hold directors accountable if companies fail to show adequate progress on meeting our climate transition disclosure expectations,” State Street said.
According to Mr Taraporevala, an important juncture on the journey to net zero had now been reached.
“At a macro level, there remains much progress to be made, and with increasing pressure from governments and regulators to cut emissions in half by the end of the decade, there is less and less time for companies to make the required progress,” he said.
While more than one-fifth of the world’s largest 2,000 companies have made a commitment to net zero, State Street said few companies had provided a clear roadmap on how they will achieve their goals.
“While the path ahead may be relatively straightforward for some companies, in general we believe that the transition will be very hard and non-linear for most,” said Mr Taraporevala.
“We anticipate that many companies will likely need to adopt approaches that require experimentation, innovation and ongoing adjustments along this unchartered journey.”
On diversity, State Street said that it would expect all of its holdings worldwide to have at least one woman on their boards beginning in the 2022 proxy season after previously applying this policy to only select major indices.
The firm also expects that the boards of companies in the ASX 300 and major indices in the US, Canada, UK and Europe will include at least 30 per cent women directors from the 2023 proxy season, which would see up to 3,000 to 4,000 more female directors appointed.
In addition, State Street said it would now take voting action against responsible directors for companies in the S&P 500 and FTSE 100 that do not have a person of colour on their board or do not disclose the racial and ethnic diversity of their boards.
“While the past two years have brought tremendous change with global supply chain disruptions, an unpredictable and mutating virus, and a growing need to chart a pathway to net zero, we have always believed that when companies embrace transitions as opportunities for innovation and differentiation, shareholders stand to benefit,” Mr Taraporevala said.
