CalSTRS Targets Carbon Emitters, Board Diversity This Proxy Season

With proxy season right around the corner, the $307.2 billion California State Teachers’ Retirement System announced it plans to target the boards of directors of companies that “fail to demonstrate their commitment to appropriately managing and addressing sustainable business practices.”

In particular, an article on the pension giant’s website said it will focus on the largest companies emitting the highest levels of greenhouse gases and will continue to evaluate the diversity of corporate boards of directors.

With earnings season in full swing, many companies will be holding their annual general meetings in the coming weeks, and one of CalSTRS’ key priorities is to address the risks climate change poses to its global portfolio.

CalSTRS expects all of its portfolio companies to provide minimum disclosures and follow the recommendations of the Task Force on Climate-Related Financial Disclosures in their financial reports. It also expects the companies to provide their direct emissions and indirect emissions, known as Scope 1 and Scope 2 emissions. CalSTRS will vote against directors at the largest global companies that do not provide this minimum level of disclosure.

“Our job as a fiduciary and long-term investor is to make sure the companies in our portfolio are planning appropriately for the future,” Aeisha Mastagni, a portfolio manager on CalSTRS’ sustainable investment and stewardship strategies team, said in a release. “Without important disclosures, investors cannot appropriately manage risks and advance our commitments to achieving a net zero emissions portfolio.”

Mastagni said emissions related to CalSTRS’ public equity investments are concentrated in a subset of companies, noting that 250 companies are responsible for 75% of the emissions within the pension fund’s public equity portfolio.

“We will continue to use our influence to ensure these high emitters—in multiple sectors—minimize risks and take advantage of the opportunities available to them to be successful in a low-carbon world,” she said.

According to the release, CalSTRS will also vote against boards of directors that do not include at least one woman and will vote against a board’s nominating and governance committee if at least 30% of its members are not women. It also will vote against the nominating and governance committees of Russell 3000 companies that do not disclose their board members’ diversity characteristics.

The pension fund also stated that companies in the Russell 1000 Index, which includes the largest public companies in the U.S., will be held to a higher standard this proxy season.

“We not only expect disclosure of the diversity of board members, we want at least one board director from each of these Russell 1000 companies to be from a typically underrepresented population,” Mastagni said.

During last year’s proxy season, CalSTRS voted on 1,033 shareholder proposals and board elections, a record for the pension fund. It also supported nearly 100 proposals last year that received more than 50% support.