State Street will vote against director elections on ESG issues without engaging

State Street Global Advisors (SSGA) is a major shareholder in Australian companies thanks to its position as one of the world’s largest index fund providers.

In its recent CEO letter to board members (see HERE),SSGA will vote against board members in companies that are falling behind on sustainability.

After having first called on boards to incorporate sustainability into long-term strategy three years ago, last year SSGA introduced what it calls a “responsibility factor”, or R-Factor, which is a scoring system that shows how well companies do on various ESG metrics.

Starting this coming proxy season, SSGA will take action against board members at large companies in US, UK, Australian (specifically the ASX 100), Japanese, German and French companies that are laggards based on their R-Factor score and cannot articulate how they plan to improve their score.

Beginning in 2022, SSGA will expand the voting action across a larger range of companies to include those which have been consistently underperforming their peers on their R-Factor scores for multiple years unless they see meaningful change.

SSGA has indicated that the transparency and robustness of its R-Factor score provides a degree of confidence in their approach, although it will “continue to engage” with issuers. Those who have tried to engage with SSGA on stewardship matters in the past may beg to differ on their prior willingness or capability to engage.

Others may suggest that such an approach is consistent with index funds’ propensity to reduce all overhead costs, and automate a stewardship issue that their already thinly spread stewardship staff need to deal with.

As index funds continue to grow, and automate their stewardship functions, it behoves issuers to get to grips with how their robots are scoring ESG factors, and adjust disclosures accordingly.

State Street’s R-Factor system can be found HERE .

© Guerdon Associates 2024
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