New York City Retirement Systems Emphasized Sustainable Stakeholder Value in 2022

New York City Retirement Systems focused their 2022 shareholder activism on promoting sound corporate governance and sustainable business practices to protect and enhance long-term shareholder value, according to a report from the Office of the New York City Comptroller Brad Lander.

“As long-term investors responsible for providing retirement security for decades to come, the New York City Retirement Systems actively work with portfolio companies to align their business strategies and policies to create sustainable shareholder value,” wrote Lander in a statement about the release of the city’s shareholder initiative report. “Systemic risks such as climate change, inequality and discrimination, if unaddressed, potentially have a negative impact on global markets, reducing returns for all investors with exposure to global markets.”

New York City Retirement Systems include five public pension funds that together have $78.5 billion in assets under management, as of June 30, 2022.

To combat the systemic risks, the comptroller’s office originated initiatives urging companies to disclose the demographic workforce data, as reported to the U.S. Equal Employment Opportunity Commission in annual EEO-1 reports. The reports are mandatory for all private sector employers with 100 or more employees and certain other employers. The reports break down a corporation’s workforce by race, ethnicity and gender in 10 employment categories.

The comptroller’s office lists American Express, Anthem, Honeywell, , Intuitive Surgical, PNC Financial, Raytheon Technologies, Simon Property Group, Texas Instruments, T-Mobile and Zoetis Inc. as companies it successfully campaigned to accept routinely making EEO-1 disclosures.

Since the July 2020 launch of NYCRS’ Diversity Disclosure Initiative, 78 large companies have agreed to disclose their EEO-1 reports in response to engagement by NYCRS, the comptroller’s office reported. As a result, more than 90 S&P 100 companies now disclose, or have committed to disclose, their EEO-1 reports, up from about 14 S&P 100 companies in July 2020, Lander’s report said.

In another 2022 focus, Lander established the Office of ESG within the Bureau of Asset Management to lead the work of integrating environmental, social and governance considerations into the pension systems’ investment and engagement strategies.

The “Office of ESG works to prudently integrate ESG considerations into investment manager due diligence, engage with managers on ESG issues and processes, draft policies for the pension funds to create value and mitigate risk over the long term by addressing ESG-related issues in investments [and] encourage sound human capital management practices at portfolio companies,” the shareholder initiative report stated.

At a time when other public asset owners, including several states, have railed against or even banned the use of ESG considerations when making decisions about investing public funds, Lander has staked out a strong and visible pro-ESG position.

In addition to the engagement strategies outlined in the report, the comptroller’s office reported participating in the shareholder proposal to curb the opportunistic use of executive 10b5-1 stock trading plans at Abbott Laboratories and the McKesson Corporation. Lander recommended that the companies’ boards adopt a policy to require Form 8-K disclosures to the Securities and Exchange Commission when certain company insiders adopt, modify, or cancel a Rule 10b5-1 trading plan.

The scheduled, systematic nature of insider transactions provided for by the operations of 10b5-1 plans shield executives and insiders from a consequential arraignment on charges of insider trading.

The proxies, submitted by Lander on behalf of multiple New York City pensions, were rejected by thin margins (50.5% to 49.5% at McKesson and 51% to 49% at Abbott Laboratories) after each corporation’s board recommended voting against.

Yet the SEC in December 2022 adopted amendments to modernize Rule 10b5-1 insider trading plans and related disclosures in an effort to strengthen investor protections concerning insider trading and to help shareholders understand when and how insiders are trading in securities for which they may at times have material nonpublic information.

During fiscal year 2022, the comptroller’s office, on behalf of the sponsoring systems, voted in 16,426 shareholder meetings during the proxy season, including 3,280 annual and special meetings for U.S. companies. The system withdrew approximately 85% of its shareholder proposals after the companies receiving the proposals agreed to take steps to implement the requests, Lander’s office reported.