CalSTRS Targets Carbon Emitters, Board Diversity This Proxy Season

The pension giant announces it will vote against the biggest polluters and all boards that have no women members.


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.

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“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.

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Canadian Pension IMCO Loses 8.1% in 2022

The pension fund’s C$69.1 billion portfolio was weighed down by fixed-income and public equity investments.


The Investment Management Corp. of Ontario’s investment portfolio lost 8.1% for 2022, as the value of its net investments fell to C$69.1 billion ($50.7 billion) from C$76.7 billion at the end of 2021. The loss, however, outperformed IMCO’s benchmark by 30 basis points.

The pension fund’s fixed income and public equities weighed down its portfolio the most, losing 19.2% and 13.5%, respectively, followed by global credit and real estate investments, which lost 7.7% and 0.3%, respectively.

The fixed-income losses were 10 bps below its benchmark’s return, while the public equity investments missed the benchmark by 160 bps. The biggest miss was by the fund’s real estate investments, whose benchmark returned 12%, compared with its 0.3% loss. Global credit was the only asset class in the red that outperformed its benchmark, which it beat by 510 bps.

Meanwhile, private equity was the top performing asset class, returning 12% and trouncing its benchmark, which lost 9.1% during the year. Global infrastructure returned 7.4% and also easily beat its benchmark, which lost 3.7% in 2022. The only other asset class reporting gains for the year was public market alternatives, which earned 1.9% but missed its benchmark’s return of 3.6%.

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“2022 was a challenging year and we were certainly disappointed in these returns,” IMCO CIO Rossitsa Stoyanova said in a statement. “We remain focused on our strategy for navigating short-term turbulence by maintaining discipline in executing our long-term investment strategy, systematic rebalancing, and effective liquidity management to capitalize on investment opportunities arising from temporary dislocations.”

Stoyanova said that the pension fund continues to increase its private market exposure, “which was a huge returns driver for us in 2022,” adding that, “on the other hand, our absolute returns’ performance was driven mainly by losses in public equities and fixed income, as both public markets and bonds took an unprecedented hit.”

Stoyanova also said that “responsible investing and ESG integration will continue to play a growing role in our strategies.” She said IMCO believes companies that strategically manage material environmental, social and governance risks will outperform their peers in the coming years.

 

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