CalSTRS Punishes Directors at More Than 2,000 Firms for Weak Climate Risk Disclosure

The $315.6 billion California State Teachers’ Retirement System said that it voted against the boards of directors at 2,035 companies during the 2023 proxy season because they did not provide what it deems necessary climate risk disclosures.

Earlier this year, the pension giant announced it planned to target the boards of companies that “fail to demonstrate their commitment to appropriately managing and addressing sustainable business practices.”

CalSTRS expects its portfolio companies to report, at a minimum, their direct greenhouse gas emissions, also known as Scope 1 emissions; indirect or Scope 2 emissions; and issue climate reports based on the Task Force on Climate-Related Financial Disclosures’ recommendations. It also expects the companies to curb their GHG emissions or at least have a credible plan to do so.

In 2021, CalSTRS pledged that its investment portfolio would be net zero of GHG emissions by 2050 or sooner. The pension fund wants to know if the companies in its portfolio are planning appropriately by working to take advantage of opportunities to reduce the risks of climate change.

“We voted against boards that didn’t meet the most basic disclosure expectations,” said Aeisha Mastagni, a portfolio manager on CalSTRS’ sustainable investment and stewardship strategies team, in a release. “These public disclosures are an important step toward reaching net zero because companies cannot be held accountable for reducing their greenhouse gas emissions without them.”

According to CalSTRS, it voted against the boards of directors of steel producers, transportation companies and metal and mining companies, in particular. It noted that there currently are no globally mandated rules for climate risk disclosures, which complicates the process of assessing whether a company is properly disclosing its risks and opportunities associated with climate change.

However, the pension giant called the introduction of the first two sustainability-related disclosure standards from the International Sustainability Standards Board this June “an important milestone for setting globally comparable standards.” The standards, which will go into effect in January 2024, aim to help establish consistency in companies’ sustainability disclosures.

The first standard, IFRS S1, provides a set of disclosure requirements intended to allow companies to communicate to investors their short-, medium- and long-term climate risks and opportunities. The second standard, known as IFRS S2, sets out specific climate-related disclosures and is designed to be used with IFRS S1. Both incorporate TCFD recommendations.

“We need to make informed decisions to manage our portfolio on behalf of California’s educators, but that job is made more difficult if companies aren’t fully measuring and tracking their emissions,” Mastagni said. “Fortunately, we believe mandatory GHG emissions reporting is on the horizon.”