State Street is a significant institutional investor in Australian equities, primarily through index funds. With the rise in shareholder activism on ESG issues, and activist AGM resolutions, it is becoming more important for boards to consider how major investors like State Street Global Advisors (SSGA) will vote.
SSGA provides the various factors they consider in determining how they vote on sustainability issues. These include factors relating to the feasibility and relevance of the issues being proposed, nature and oversight of the project and its impact on long-term shareholder value.
When judging the materiality and relevance of sustainability issues, SSGA use several different frameworks to make their decision. These are designed to determine if these environmental and social issues can affect risk and long-term value creation. The frameworks are listed as follows:
- Sustainability Accounting Standards Boards (SASB) Materiality Map
- The Task Force on Climate-related Financial Disclosures (TCFD) Framework
- Disclosure expectations in a company’s given regulatory environment
- Market expectations for the sector and industry
- Other existing third-party frameworks
- R-Factor Score, an in-house proprietary scoring model
Many Australian boards will not be across most items on this list. Yet they will influence ASX listed company disclosures in the next few seasons.
The voting options for sustainability related proposals are defined as follows:
- SSGA votes for the sustainability related proposal if the issue is material and the company has poor disclosure and/or practices relative to their expectations.
- SSGA votes abstain if the issue is material and the company’s disclosure and/or practices could be improved relative to their expectations.
- SSGA votes against the proposal if the issue is non-material and/or the company’s disclosures and/or practices meet their expectations.
SSGA’s voting options imply that they will utilize their voting power to drive companies to reach a certain standard regarding their sustainability. It suggests that they would not push companies to go further than marketplace expectations.
The in-house R-Factor score is explicitly designed to target outliers within the industry on sustainability issues. Considering that SSGA will vote against sustainability proposals if they conform to their expectations, it is unlikely that SSGA will do anything significant in this area.
Beyond this, they also conduct thematic prioritizations to prioritise the proposals and issues to look at. They focus on issues that are popular with their clients and are trending. These issues may not be the best policies for the environment and social issues.
See the full SSGA statement HERE .© Guerdon Associates 2020 Back to all articles