As the second-largest U.S. public pension fund, with assets north of $300 billion, the California State Teachers’ Retirement System (CalSTRS) can influence corporate America. If companies aren’t willing to adapt to climate change risks and make meaningful progress on environmental, social and governance (ESG) issues, then funds like CalSTRS can hold them accountable.
Increasingly, CalSTRS is putting its money where its mouth is.
Last fall, CalSTRS committed to reaching a net-zero investment portfolio by at least 2050. Getting there involves a multi-pronged approach, ranging from public policy advocacy to allocating billions toward low-carbon investment strategies. It also involves increased pressure on companies within the fund’s current investment portfolio.
While CalSTRS opposed a California bill that would require the fund to divest from fossil fuel companies by 2027, the pension has been wielding the power of its significant ownership stakes in publicly traded companies. That can include privately engaging with companies to get them to make changes, like committing to net-zero goals. But when that doesn’t work, CalSTRS can use its proxy voting power.
In particular, CalSTRS has ramped up pressure during the 2022 proxy season, with a new strategy that involves voting against directors “that have moved too slowly to achieve greater board diversity or significantly address climate change,” the fund says in a press release. “CalSTRS will also directly support shareholder proposals that promote further progress in reaching global net zero goals that align with the United Nations’ Race to Zero campaign and principles of the Paris Agreement.”
Record Proxy Voting Action
During the 2022 proxy season, CalSTRS says it has taken record voting action to hold companies accountable on issues such as climate change and diversity.
For example, CalSTRS voted for several climate-related shareholder proposals at ExxonMobil. Only one passed, which calls on Exxon to obtain an audited report related to the financial risks of the continued development of fossil fuel resources.
Even the proposals that didn’t pass — like one related to reporting on the financial impacts of reducing virgin plastic demand — could signal what’s to come, considering that shareholder proposals can re-appear in subsequent years as support builds. For example, the aforementioned proposal that passed this year narrowly failed in 2021.
And when large shareholders like CalSTRS signal support for climate-related proposals, that could encourage more investors to get on board. Meanwhile, companies that don’t change then risk consequences like having board members lose their seats.
That’s not to say that CalSTRS has voted in favor of every shareholder proposal related to sustainability, but the fund states that it “committed to vote in favor of shareholder proposals that made measurable gains on net zero, such as the setting of appropriate science-driven targets to reduce emissions.”
And while the fund still has a ways to go to reach its long-term, net-zero target, putting pressure on companies via proxy voting is a step in the right direction. In turn, that can lead to better financial results, along with a healthier planet.
“Evidence shows that sustainable, resilient, well-run companies are more likely to perform better in the long run. Companies that do harm are riskier places to invest in for the long term because they face a future of increasing consumer criticism, government regulation and financial penalties,” notes the UK’s Make My Money Matter campaign.
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