CalSTRS executives are putting more teeth in their corporate governance engagement, planning to vote against directors on boards of public companies that are working too slowly to add female directors or address climate change, said Aeisha Mastagni, a portfolio manager on the $318.1 billion West Sacramento, Calif.-based pension plan's sustainable investment and stewardship strategies team.
Forty-seven percent of the California State Teachers' Retirement System's portfolio was invested in equities as of Dec. 31. Most of CalSTRS' public equity portfolio is passively managed.
Ms. Mastagni said CalSTRS is "escalating" its proxy voting approach from quiet conversations to voting against the entire board at companies in the Russell 1000 that do not have at least one female director. CalSTRS also plans to vote against directors on the nominating committees of companies for which less than 30% of their board directors are female, and against the nominating and governance committee members who do not disclose the skills and diversity characteristics of their board members.
"We feel that we communicated our views long enough," Ms. Mastagni said. "If you still don't have a woman on your board in 2022, we are voting against your whole board."
CalSTRS has not yet determined which of the 9,000 securities in its equity portfolio are companies without female and/or minority board directors.
CalSTRS officials have been communicating with the SEC asking that the agency require all companies to disclose such human capital metrics, including the skills, gender and diversity characteristics of their employees, she said. Right now, companies only have to disclose the number of employees, Ms. Mastagni said.
"I would not be surprised if the SEC released another rule around human capital and diversity this year," she said.
Climate change is another focus of CalSTRS' corporate engagement plan for 2022, Ms. Mastagni said. CalSTRS plans to vote against directors of the 1,900 largest global companies in its equity portfolio that have not published reports disclosing their Scope 1 emissions (direct greenhouse gas emissions) and Scope 2 emissions (indirect greenhouse gas emissions) in alignment with the Taskforce on Climate-Related Financial Disclosures. CalSTRS also plans to vote against directors of the highest greenhouse gas emitters as identified by Climate Action 100+ that have not disclosed emissions in alignment with the TCFD and have not set appropriate targets to reduce greenhouse gas emissions.
In the past, CalSTRS engaged with companies on a case-by-case basis, Ms. Mastagni said. Now, pension officials are setting "a consistent message" that CalSTRS expects every company to take "meaningful net-zero actions," including setting appropriate science-based targets to reduce emissions, she said.
CalSTRS will also vote in favor of meaningful net-zero proposals such as setting targets to meet the net-zero by 2050.
CalSTRS aims to hold directors accountable for managing climate risk, by requiring companies to disclose the basic minimum emissions data that CalSTRS needs to appropriately manage its own path to net-zero by 2050 or sooner, Ms. Mastagni said. CalSTRS' board made its net-zero commitment in September.
