Not to be outdone, State Street followed BlackRock's lead in its CEO's annual letter to boards released yesterday indicating that it, too, will penalize companies at the proxy voting booth if they fail to show progress and engage on sustainability. More specifically, State State's proprietary SASB-based ESG scoring system, "R-Factor" (previously reported on here), which draws on data from Sustainalytics, ISS-ESG (formerly Oekom Research), Vigeo-EIRIS, and ISS-Governance, will inform its proxy voting decision-making going forward.
The letter warns that - beginning this proxy season - the investor will vote against S&P 500 and other non-US large cap company index directors of R-Factor score "laggards" that are unable to explain how they plan to improve their scores and that, beginning in 2022, it will expand the pool to companies that have consistently underperformed (based on their R-Factor scores) their peers for multiple years with no signs of "meaningful change." The stated overarching objective is to ensure companies are identifying and incorporating into their long-term strategy the implications of material ESG issues. The letter indicates that, to date, fewer than 25% of companies State Street has evaluated have "meaningfully identified, incorporated and disclosed material ESG issues into their strategies."
The letter references and links to this "ESG Oversight Framework for Directors" to assist boards with better understanding and effecting the investor's expected scope of their ESG oversight responsibilities, with an emphasis on the consideration of financially material ESG issues on the company's long-term strategy and business operations. The letter also discusses State Street's R-Factor, indicating that company-specific scores are being made available to management in connection with its engagement activities. Companies that have not seen their score are invited to request it at ssga.com/esg /r-factor-score. The company-specific R-Factor score, in turn, serves as the launching point for State Street's suggested board oversight framework, which is illustrated graphically on page 4 (and set out in full in the weekly Society Alert).
See also these articles from Bloomberg, InvestmentNews, Yahoo, and Pensions&Investments; these prior reports: "State Street Reports on Climate Disclosure Analysis" and "State Street: Climate Change Risk Oversight Framework"; and additional information & resources on our Institutional Investors (see "State Street") and Sustainability/ESG pages. This post first appeared in this week's Society Alert!