State Street’s Stewardship Report

State Street Global Advisors is one of the world’s largest asset managers, responsible for more than $3.4 trillion in assets under management. It has significant shareholdings in most ASX 100 companies. It votes against remuneration reports over 20% of the time. So it is worth understanding its point of view.

State Street released its annual Asset Stewardship Report. In this article we summarise the key points worth noting.

Asset stewardship is the responsible management of assets to maximise their value and achieve long-term sustainability. State Street’s CEO says it is committed to a pragmatic, value-driven approach to promote sound governance practices within the boards of its portfolio companies.

Some key observations and findings from its latest stewardship report include:

  • In advance of general meetings, companies and shareholder proponents seek engagement meetings. State Street may also seek clarification from companies prior to voting. It typically engages on:
    • Seeking additional information about an issue on a proxy statement.
    • Giving a company the opportunity to correct any misinformation.
    • Learning how a board oversees an issue, and/or
    • Offering feedback to companies about its perspective on the issue.
  • Its proxy voting decisions “are made with the goal of maximising shareholder value”.
  • 17% of its 2022 proxy voting were against management-initiated proposals (e.g. director elections, routine business, and remuneration approval).
  • 10% of its 2022 proxy voting were against shareholder-initiated resolutions supported by management.
  • In 2022, State Street did not support approximately 22% of pay related proposals, compared to 21% in 2021.
  • Its 2023 stewardship priorities include:
    • Effective board oversight
    • Climate risk management
    • Human capital management
    • Diversity, equity, and inclusion
  • A key action in 2024 will be voting against the chair of a nomination and governance committee in S&P 500 companies that do not disclose internal policies on director time commitments. This is an interesting response to the issue of “over-boarding”. Many investors who consider a director as too committed elsewhere would leave it at not voting for the director.
  • There has been a “25% increase both in formal board meetings and number of days spent on director work” with concerns that this could lead to a “degradation of overall board effectiveness over time”.
  • State Street has developed its Proxy Voting and Engagement Guidelines (see HERE) for Environmental and Social Issues with the goal of achieving a thoughtful approach to voting on complex proposals and to make its expectations transparent. Its considerations on environmental and social shareholder proposals include:
    • Materiality, as determined by SASB and its own Stewardship Priorities.
    • Alignment with its published guidance for investee companies, which includes frameworks for evaluating proposals on the topics of climate disclosure, diversity disclosure, civil rights disclosure, pay equity disclosure, human rights disclosure, political contributions, lobbying and trade association alignment, human capital management disclosure, and environmental management disclosure.
    • Whether the proposal is prescriptive, given that State Street does not require companies to change their operations or strategy.
    • Board oversight effectiveness, as determined by engagements and disclosures.
  • Since 2014 State Street has conducted 1,100 engagements relating to climate risk management with investee companies. In addition to public disclosures in accordance with the TCFD framework, It also expects its portfolio companies to disclose:
    • Interim greenhouse gas emissions reduction targets
    • Any impacts of TCFD-required scenario-planning on strategy and financial planning
    • Climate considerations in capital allocation decisions
    • Scope 1, 2, and material categories of Scope 3 emissions
  • In 2022 State Street voted on 155 climate-related proposals and supported 44% of the proposals. It voted against directors (151 companies) where disclosures were not aligned with TCFD recommendations.
  • Increasing areas of concern for State Street are Human Capital Management and Diversity, Equity and Inclusion. It is increasingly leveraging its voting against directors to “drive accountability on ESG disclosures and oversight” of human capital management. It continues “to have concerns with many technology companies’ approaches to the social dimension of ESG”.
  • An increasing importance is placed on board diversity and disclosure “including how the board reflects diversity of the company’s workforce, community, customers, and other key stakeholders”.

You can find State Street’s Asset Stewardship Report HERE.

© Guerdon Associates 2024
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