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Past CalSTRS engagements

Past engagements to influence changes in public policies and corporate practices that support long-term value creation.


Fourth quarter, 2022 

Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

Engagement spotlight

CalSTRS continues to wield influence in the global investment industry 

CalSTRS can trigger change by building strategic relationships with investors, policymakers, business leaders and other influential decision-makers. An effective way to develop these relationships is by participating in flagship industry events where we can exchange ideas about global solutions to pressing issues, such as climate change.

We played an active role during two notable events this quarter:

PRI in Person

The Principles for Responsible Investment is a United Nations-supported network of investors, representing more than $121 trillion in assets under management, that focuses on responsible investment, including understanding the implications of environmental, social and governance-related risks and opportunities. The PRI recently hosted its annual conference, which boasted more than 2,400 attendees from around the world. CalSTRS’ Teachers’ Retirement Board Vice Chair, Sharon Hendricks, other PRI board members, the UN secretary-general, and the UN special envoy for climate action and finance, participated in the conference’s opening panel, which set the tone for the event by focusing on the growing expectation of responsible investors.

Responsible Investor USA

This annual event focused on sustainable business and finance issues in North America. More than 400 top-level sustainable finance and ESG investment professionals gathered to learn, share and debate ESG opportunities and challenges. CalSTRS Portfolio Manager Aeisha Mastagni was among them. Mastagni spoke on a panel discussing new rules proposed by the Securities and Exchange Commission that outline mandatory climate-related disclosures for public companies. Better disclosure of climate-related issues has long been a part of CalSTRS’ broader strategy to reach a net zero portfolio by 2050 or sooner.

    Stewardship priorities update

    Corporate and market accountability 

    Federal regulators strengthen rules against insider trading and improve market transparency

    In December 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934. This rule, created more than 20 years ago, allows company executives and other insiders to set up stock trading plans. These plans establish the amount of stock insiders can sell and the timeframe in which they can sell them. The plans help combat insider trading, a federal crime in which someone trades a stock while possessing information not publicly available and that may impact a stock’s future price.

    The amendments to Rule 10b5-1 are meant to strengthen disclosure rules and close loopholes that circumvent the intent of the rule. Disruptive and illegal practices such as insider trading can impact investor confidence in the stock market. Transparent and fair financial markets, where everyone plays by the same rules, is beneficial to all investors, including CalSTRS.

    Net zero transition

    Policy engagement on the road to a low-carbon economy 

    A priority of CalSTRS’ stewardship efforts is using our influence as a significant global investor to promote long-term sustainable business practices and public policies. This priority was a highlight of 2022 with the passage of the Inflation Reduction Act—the largest package of climate investments in the United States.

    This law includes $370 billion of new energy-related tax credits designed to support companies on the path to net zero. Additionally, the support for net zero at the federal level is creating favorable conditions for sustainable transportation and power sector policies and regulations. This means there will be additional opportunities for the CalSTRS stewardship team to influence policy development.

    How does CalSTRS, a fund managing over $300 billion, influence the public climate policy debate? Beginning in 2018 and as a lead investor in Climate Action 100+, we committed to urging companies in high-emitting sectors to publish a corporate policy that describes how the board of directors oversees the management of climate-related risks. This includes asking corporate boards to disclose a framework that will ensure direct lobbying and advocacy activities are aligned with the company’s stated climate goals. Public actions of the company should demonstrate commitment to these climate goals.

    According to a report issued by the nonprofit group Ceres, 11 companies in the Climate Action 100+ Benchmark, including Duke Energy and Southern Company, two companies in which we lead engagement efforts, made public statements in support of the Inflation Reduction Act in the weeks between its introduction in the Senate and subsequent passage in August 2022. In the fourth quarter of 2022, at the request of CalSTRS and other investors, Dominion EnergyDuke Energy and Southern Company published climate lobbying and trade association reports describing their activities.

    With the Inflation Reduction Act in place, now the work begins to influence the development of policy and regulatory infrastructure to guide its key provisions. In 2023, we will engage with companies and federal regulators to support the establishment of rules and policies aligned with the transition to a low-carbon economy.

    Nations of the world convene on climate change, CalSTRS’ net zero strategy recognized 

    The 2022 United Nations Climate Change Conference, known as COP 27, was held for two weeks in November. About 35,000 representatives from 190 countries attended the annual event, which allows government representatives to discuss climate change policies. This year, a significant focus was on the concept of “loss and damage,” or the negative consequences of climate change that go beyond what people can adapt to. The event established the first loss-and-damage fund, where high-carbon-emitting developed nations most responsible for climate change agreed to provide financial support to developing nations who are most vulnerable to climate change.

    Before COP 27, CalSTRS signed the 2022 Global Investor Statement to Governments on the Climate Crisis. Coordinated by The Investor Agenda, a coalition of sustainability-focused organizations, the statement called on world governments to take bold action to help avert the worst effects of climate change by limiting global temperature rise to 1.5 degrees Celsius above preindustrial levels, which aligns with the goals of the Paris Climate Agreement on climate change.

    The Investor Agenda also published a case study of our net zero strategy. These case studies are meant to inspire other institutional investors to adapt similar policies that will help address climate change risks.

    Responsible firearms

    Merchant Category Codes could provide vital insight on firearms transactions 

    When the International Organization for Standardization announced earlier in 2022 the creation of a Merchant Category Code for retailers of standalone firearms, safety advocates recognized it as an opportunity to better understand how data can be used to reduce firearms-related violence.

    The four-digit merchant codes identify retailers individually or by the type of products sold. These merchant codes are primarily used for tax reporting purposes, to determine credit card point eligibility for specific purchases, or to track consumer spending habits. While the codes do not provide a detailed account of the items purchased, safety advocates say the data could be used to help identify suspicious activity associated with gun trafficking and mass shootings.

    To determine which companies to engage on this topic, we worked with other investors and compiled data on the number of credit card customers and transactions served by individual companies. A list of the 10 most influential banks and financial institutions to engage on this topic was developed, and conversations with these companies are scheduled to start in January 2023.

    Advocates for the new Merchant Category Code say existing processes designed to identify potential fraud or money laundering could be adjusted to identify suspicious firearms-purchasing activity. One hurdle still to address is determining whether and how companies could use collected data to inform law enforcement of suspicious activity related to firearms transactions. While there is no requirement for businesses to use the new codes, the hope is that companies will use them, thereby providing a way to gather helpful data. Another hurdle is to determine whether and how companies could use such data to report to law enforcement suspicious activity related to firearms transactions.

    Third quarter, 2022 

    Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

    Engagement spotlight

    CalSTRS provides updates on net zero strategy; Teachers’ Retirement Board approves bold set of actions

    At the August/September 2022 Teachers’ Retirement Board meeting, we presented a comprehensive progress update on our net zero strategy. This marks the one-year anniversary since the board first committed to achieving net zero greenhouse gas emissions across the investment portfolio by 2050 or sooner.

    Throughout this first year, we focused on identifying methods to reduce carbon emissions in the portfolio, increasing exposure to low-carbon investments, and escalating engagement strategies with companies, regulators and policymakers. At the meeting, the board approved a package of investment actions to enhance its efforts to achieve a net zero investment portfolio, address climate change and support the retirement security of California’s public teachers:

    • Interim science-based goal. Reduce greenhouse gas emissions across the CalSTRS Investment Portfolio by 50% by 2030, consistent with the latest findings of the United Nations’ Intergovernmental Panel on Climate Change.
    • Systematic decision-making process. Adopt processes to incorporate greenhouse gas emissions into investment decisions as part of traditional risk-and-return analyses and their potential impacts on the CalSTRS Funding Plan.
    • Reduce emissions: Target a 20% allocation of the Public Equity Portfolio to a low-carbon index to significantly reduce portfolio emissions while managing active risk. We estimate this allocation shift alone could reduce portfolio emissions by as much as 14%.
    • Climate scenario integration: Incorporate future climate-related scenarios into CalSTRS’ asset-liability modeling framework to help guide investment allocations.

    In addition to these actions, we continue to influence the market broadly through escalated engagement strategies. In 2022, we voted against directors at the 1,900 largest global companies who failed to disclose fundamental greenhouse gas emissions data. We will continue this practice in 2023 plus engage lawmakers and regulators, such as the Securities and Exchange Commission, to advocate for the adoption of policies that support the transition toward a net zero economy.

    Stewardship priorities update

    Corporate and market accountability

    Long-term efforts yield results

    Fundamental changes in the market sometimes require persistent effort over extended periods of time. Engagement does not happen overnight. Recently, we’ve seen multiple long-running engagements come to fruition with positive outcomes for investors.

    International Sustainability Standards Board

    The ISSB fills a long-lasting information gap by establishing global, sustainability-focused disclosure standards that CalSTRS and other investors have been seeking. Globally adopted sustainability standards, which are aligned with traditional accounting standards, will enable companies to provide investors with the necessary data to make fully informed decisions.

    We’ve been involved with the development of these standards for many years. In July 2022, we provided comments on an initial draft of disclosures released by the ISSB. We will continue to work with the ISSB to ensure the final disclosure standards will enhance our ability to provide a secure retirement for California’s educators.

    Universal proxy cards

    In September 2022, a new SEC rule went into effect that mandates the use of universal proxy cards. Investors select the directors of a public company board through a process known as proxy voting. Directors are often nominated by the management of the company, although in some instances alternate directors are nominated by investors.

    Under previous SEC rules, investors were forced to choose between the directors nominated by management and those nominated by investors. Universal proxy cards eliminate that scenario and instead allow investors to mix-and-match any combination of directors nominated from both sides. This means investors can vote for whom they believe is the strongest mix of directors. We first wrote to the SEC in 2018 to stress the importance of finalizing a universal proxy rule.

    Pay for performance

    Pay for performance refers to how company executives are compensated relative to performance measures. It’s important for executives to be appropriately incentivized and have their interests aligned with investors and the long-term performance of the company.

    In August 2022, the SEC adopted rules requiring companies to report pay-for-performance data publicly and consistently. These rules are in response to the wide-ranging impacts of the 2010 Dodd-Frank Act, which was intended to improve the stability of the U.S. financial system after the global financial crisis of 2008. We’ve engaged the SEC on this issue for years, most recently with this March 2022 letter.

    Board effectiveness

    Leading the way on board diversity

    The California Investors for Effective Board Diversity wrapped up their seventh successful year of engagement at the end of June. The group (CalSTRS, California Public Employees Retirement System, Los Angeles County Employees Retirement Association and San Francisco Employees’ Retirement System) continues to build on the success of the California Board Diversity Initiative, which began in 2015 with a focus on increasing the board diversity of California companies.

    In 2021, the same California-based investors expanded their focus to 57 companies in the Russell 1000, advocating for the inclusion and diversity of gender, race, ethnicity and LGBTQ+ identity. The California group’s engagement resulted in 43 companies appointing 53 diverse directors. Additional engagement successes include:

    • 32 companies updated their definition of diversity to include gender and race/ethnicity in either their proxy or governance documents.
    • 29 companies included enhanced diversity disclosures in their proxy statements.
    • 19 companies included a skills matrix in their proxy statements.
    • 10 companies adopted the Rooney Rule, a policy that requires candidates from underrepresented groups be included in the initial search pool of candidates.

    For the 2022–23 engagement season, the group will engage 60 companies in the MSCI USA Investable Market Index. The focus of the engagement will be to increase diverse director representation and encourage clear guidance in corporate governance policies, addressing board diversity in board refreshment and recruitment practices.

    Net zero transition

    Climate Action 100+ successes and next steps

    Since launching in 2018, the world’s largest investor-led initiative on climate change, Climate Action 100+, has broadly met its original goals for its first phase of engagement with 166 carbon-intensive companies:

    • Climate Governance: 148 companies now have oversight of the management of climate-change risks at the board level.
    • Climate Action: 110 companies made a net zero commitment, while 134 companies set greenhouse gas emissions targets.
    • Climate Disclosure: 110 companies now report emissions in line with the Task Force on Climate-Related Financial Disclosures.

    While these initial successes are encouraging, investors are asking for even more action from companies by 2030. The focus of the next phase of Climate Action 100+ is for companies to increase the ambition of their short- and mid-term emissions reduction targets. This includes developing robust decarbonization plans to achieve a 50% reduction in greenhouse gas emissions by 2030 to stabilize the climate.

    The enhanced goals are part of a strategy to accelerate decarbonization in sectors where current renewable technology exists, while other sectors continue to research and develop new low-carbon opportunities. Additionally, investors work with companies on thematic projects like achieving a just transition, climate lobbying alignment, accounting for stranded assets, and using emission offsets prudently.

    As with the first phase of Climate Action 100+, we will be a lead investor in the initiative’s next phase, spearheading engagement efforts with eight companies.

    Responsible firearms

    Letter to Visa, Mastercard and American Express

    With the support of investors and companies, the International Organization for Standardization decided to create a merchant classification code for firearm retailers. The codes are used by financial institutions to track transactions and determine the types of services or goods being sold to consumers.

    Last year, the IOS rejected a request from New York-based Amalgamated Bank to establish the codes, even though many believe they could be useful for identifying irregularities in the purchase of firearms and ammunition. In a welcome change of circumstances, the bank announced in September 2022 that its most recent application had been approved by the IOS.

    Earlier this year, CalSTRS and New York City’s three public retirement pension funds coauthored a letter urging credit card companies to support the IOS in the establishment of the unique code for firearms retailers. The letter opined that the establishment of a firearms code would allow banks to comply with their regulatory obligation to report suspicious purchasing activity, such as an unusually large number of firearms bought over a short time span. We are following up by engaging with the major credit card companies to determine how the new codes will be implemented and how the collected data will be used.

    Second quarter, 2022 

    Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

    Engagement spotlight

    2022 proxy season: A record number of shareholder proposals and CalSTRS’ escalated voting tactics

    The majority of U.S. corporations hold annual meetings from April through June to elect board members and make other key decisions, a time of year known as proxy season. CalSTRS casts our votes—also called proxy votes—at these meetings every year. Proxy voting represents one of our best tools to shape company behavior to drive long-term value creation. For this reason, we treat our votes with the same care as any other asset in the fund. Every year, we vote on nearly 100,000 items at more than 9,000 companies around the world.

    This year, there were a record number of shareholder proposals (proposals introduced by investors rather than the company) on proxy voting ballots. As a significant global investor, we applied a consistent and thoughtful approach to voting on 1,033 shareholder proposals this year. Nearly 100 CalSTRS-supported shareholder proposals received more than 50% shareholder support, including successful proposals requesting companies align corporate activities with the goals of the Paris Agreement on climate change, enhance transparency and disclosures on racial equity, and strengthen governance practices. Majority support of these proposals indicates a growing understanding by shareholders that these issues are important when making investment decisions. They also send strong messages to companies about investor expectations. For the 2022 proxy season, we voted in favor of shareholder proposals that made measurable gains toward companies, including in the energy sector, achieving their net zero goals, such as setting appropriate science-driven targets to reduce emissions.

    We expect corporations to appropriately manage climate change risks by publishing a report aligned with the internationally recognized Task Force on Climate-Related Financial Disclosures and disclosing, at a minimum, direct emissions (Scope 1) and indirect emissions (Scope 2). Additionally, this year we cast more votes against directors of companies acting too slowly on climate change and diversity.


    CalSTRS voted against nearly 400 directors at companies that had not disclosed fundamental greenhouse gas emissions data and against more than 4,000 directors at companies with boards comprised of less than 30% women.


    These voting tactics reflect an escalation in the engagement process. When progress is too slow, we will leverage all tools available to bring about change.

    Stewardship priorities update

    Net zero transition

    Southern Company issues Just Transition Report

    Southern Company, a CalSTRS-led Climate Action 100+ utility company and the second largest utility provider in the United States, released its first Just Transition Report. “Just transition” refers to securing the rights and livelihoods of workers as the economy makes fundamental shifts toward decarbonization. Southern Company’s report outlines a set of just transition principles that foster strong governance, effective stakeholder engagement and transparent communication by the company. The report also outlines support for employees whose jobs are affected by its decarbonization efforts.

    During past engagements, Climate Action 100+ investors, including CalSTRS, have prioritized the need for companies to incorporate just transition and equity issues into long-term climate strategies. Southern Company is an industry leader with practices that can influence other energy companies.

    Climate Action 100+ benchmark shows improvement toward net zero goals

    In March 2022, Climate Action 100+, the world’s largest investor-engagement initiative on climate change, released the second round of its Net Zero Company Benchmark assessments. The benchmark primarily illustrates how companies are responding to CalSTRS’ and other investors’ requests to transition to net zero-emissions business models.

    According to the data, 69% of focus companies have committed to achieve net zero emissions on some level by 2050 or sooner, and nearly 90% publicly report detailed emissions disclosures. As lead investor in Climate Action 100+, we use the information from the benchmark to develop engagement strategies and assess the alignment of company decarbonization plans with the goals of the Paris Agreement.

    An advisory panel that includes the Transition Pathway Initiative, Carbon Tracker Initiative, InfluenceMap, and 2° Investing Initiative developed the Climate Action 100+ Net Zero Company Benchmark in 2020. The group works with companies to gather information on the benchmarks’ 10 disclosure indicators and releases the data to the public. The indicators assess how companies are transitioning to low-carbon business models and outlines the governance processes being put into place to help ensure companies’ climate goals are achieved.

    This fall, Climate Action 100+ will release updated benchmark scores to show how companies have improved since the beginning of 2022. The 166 companies on the initiative’s focus list account for about 80% of the world’s corporate industrial greenhouse gas emissions.

    Corporate and market accountability

    Securities and Exchange Commission takes action on climate; CalSTRS pushes for robust corporate disclosures

    In March 2022, the Securities and Exchange Commission took a major step toward requiring companies to report climate-related disclosures. The agency announced draft rules intended to help investors understand climate-related risks at public companies. CalSTRS committed to a net zero investment portfolio by 2050 or sooner and frequently communicated verbally and in writing with the SEC in pursuit of such rulemaking. These disclosures are crucial for investors like us to measure companies’ progress toward a net zero world.

    We are supportive of the proposed rules and responded to the SEC’s request for feedback. We also asked the SEC to consider further enhancements to the proposed rules: Include Scope 3 (value chain) emissions disclosure requirements, require attestation of greenhouse gas emissions, and use the International Sustainability Standards Board’s Climate Standard as the basis for its rulemaking.

    Responsible firearms

    CalSTRS’ engagement strategy supports a crackdown on ghost guns

    CalSTRS’ effort to encourage federal policymakers to change regulation on ghost guns is paying off. In April 2022, the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) issued a new rule requiring serial numbers on ghost guns. Last year, our stewardship team developed a strategy to reduce the violence associated with ghost guns, which included submitting a letter in support of a proposed ghost gun regulation.

    When the regulation takes effect on August 24, 2022, the parts used to make ghost guns must be registered and sold by a federally licensed firearms dealer, which will include filing paperwork and requiring the purchaser to complete a background check.

    Since 2016, ghost guns have become a growing problem in law enforcement investigations because they lack a serial number, making it extremely difficult to trace ownership when recovered at a crime scene. By 2021, more than 20,000 ghost guns were recovered from crime scenes across the country, according to ATF reports.

    In addition to writing a letter of support of the new ATF regulation, CalSTRS staff engaged with the credit card industry to establish best practices that would help prevent the sale of ghost guns in states where they are illegal. Credit card companies say they are aware of the new regulations and will work with retailers to ensure firearms transactions comply with the new federal regulation.

    First quarter, 2022 

    Engagement spotlight

    CalSTRS persuades two major utility companies to set more ambitious climate goals 

    Persistence is paying off when it comes to engaging Duke Energy and Dominion Energy.

    CalSTRS, as part of our commitment to the investor coalition Climate Action 100+, has led efforts to engage the two large utility companies since 2018. As lead engager, we continually encouraged both companies to address climate change and align their business models with a net zero emissions future.

    In February, the two did just that.

    Duke and Dominion separately announced they would strengthen their commitments to achieving net zero emissions across their operations by 2050 or sooner. Net zero means a company does not contribute additional greenhouse gases to existing global emissions. CalSTRS made our net zero portfolio emissions pledge in September 2021.

    Duke and Dominion intend to achieve their goals by adding a portion of Scope 3 emissions—the emissions generated by their customers or suppliers—to the total greenhouse gas emissions covered by their commitments. Both companies are seeking to reduce emissions not only in how they produce electricity but also in how they provide electricity to their customers, which is very significant.

    In addition, Duke agreed to accelerate the elimination of coal plants from its portfolio of power plants. By 2035, it will not operate any coal-fired power plants. Coal emits about twice as much carbon dioxide as natural gas, according to the U.S. Energy Information Administration.

    Since we started engaging these companies, our staff sent a loud and clear message: Companies need to take climate change into account when developing business strategies. This is essential to create the long-term value that helps us ensure a secure retirement for CalSTRS members.

    Staff wrote letters and talked to corporate management and leaders, building trust and understanding. In November 2021, we went a step further. Working with our fellow global investors, we drafted shareholder proposals that specifically called on each company to address risk related to climate change, including adding Scope 3 emissions to their net zero pledges. Ultimately, both proposals were withdrawn as engagement successfully led to both companies taking action and responding to investor requests.

      Stewardship priorities update

      Net zero transition 

      ExxonMobil makes first net zero commitment, but there is still work to be done

      In 2021, CalSTRS played an instrumental role by using our influence and proxy votes to elect three new directors with significant experience in the low-carbon transition to the ExxonMobil board. In January 2022, ExxonMobil announced its first pledge to achieve net zero greenhouse gas emissions by 2050.

      While this was a significant step in the right direction, and a welcome change in direction, ExxonMobil’s initial pledge only covers greenhouse gas emissions from its own operations (known as Scope 1 and Scope 2). The pledge did not cover Scope 3 emissions—by far the largest category of emissions for an oil and gas company as they include emissions created using a product the company makes, such as drivers using gas produced by ExxonMobil.

      Other U.S.-based oil and gas companies, including Phillips 66 and Chevron, have recently committed to reducing some of their Scope 3 emissions, following many of their European competitors. While the overall sector is accelerating its targets for reducing emissions, global investors, including CalSTRS, continue to push for additional progress.

      Corporate and market accountability 

      CalSTRS keeps up pressure for regulators to connect executive pay with corporate performance

      In March, CalSTRS engaged with the U.S. Securities and Exchange Commission to support a proposed rule meant to improve transparency and comparability in executive compensation plans. We worked for years to support this idea, which was first proposed by the SEC in 2015 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Aligning executive pay with corporate performance is imperative to ensure executives have the right incentives for managing a company in a way that promotes long-term value beneficial to shareholders like CalSTRS.

      Board effectiveness 

      California increases corporate board diversity, CalSTRS wants the rest of the world to follow

      A new report released by the California Partners Project demonstrates increased gender diversity on the boards of publicly traded companies in California. CalSTRS supports this progress and is seeking similar improvement on the national and international stage.

      We advocate for diversity in corporate leadership as part of our effort to ensure the companies we own maintain their long-term value. Companies with diverse leadership have better decision-making processes, documented in multiple academic studies, because people from different backgrounds bring fresh perspectives and new ideas.

      A state law (SB 826) that requires California public companies to have more female directors led to some dramatic changes, according to the California Partners Project report:

      • When SB 826 was passed in 2018, one-third of California’s public companies had no women directors. Now only 2% do not.
      • In just three years, women have gained nearly 1,100 board seats. In 2018, there were 766 women on California’s public company boards, and as of September 2021, women held 1,844 seats.
      • Today, women hold 29% of director seats, compared with only 11.5% in 2018.

      A similar law (AB 979) that mandated companies to have members of underrepresented communities on their boards was struck down by a California judge in April. Despite this legal outcome, we remain steadfast in pushing for board diversity. During the upcoming proxy season, we will hold directors of laggard companies accountable for their inaction. For example, we will vote against the entire board of directors of companies that do not have at least one woman director.

      Responsible firearms

      CalSTRS aims to reduce ghost guns purchases

      At first glance, credit card companies may not seem like they would play a role in the unregulated sale of firearms. Unfortunately, some do. Some are facilitating the purchase of “ghost guns,” a dangerous new type of weapon that has no serial number, no records and is readily available from online vendors without the purchaser requiring a background check. People who are not allowed to own guns—such as convicted felons and minors—can easily buy them.

      At CalSTRS, promoting a safe and responsible civilian firearms industry is a stewardship priority because of the potential risks to society and the companies we own. We are zeroing in on ghost guns because financial, regulatory, reputational and legal risks are especially high.

      Ghost guns clearly pose a threat. About 24,000 of these guns were found by law enforcement at crime scenes from 2016 and 2020, including 325 at homicides or attempted homicides, according to the federal bureau of Alcohol, Tobacco, Firearms and Explosives.

      Ghost guns can be put together at home by people who buy separate parts from manufacturers or weapons’ parts kits. They are most often sold by small stores online and purchased through credit cards.

      We are working on this issue with a coalition of investors that support the CalSTRS-led Principles for a Responsible Firearms Industry. As part of that effort, we asked the credit card companies we invest in to assess their policies related to transactions involving ghost guns and report to shareholders.

      The Connecticut Treasury, a member of the Principles for a Responsible Civilian Firearms Industry coalition, shared our research with the Rhode Island Treasury and co-filed a shareholder proposal with MasterCard asking for similar disclosures.

      The U.S. Securities and Exchange Commission is reviewing a challenge from MasterCard to determine whether the proposal will go to a vote of shareholders at the company’s annual meeting. But even if it does not go before shareholders, the proposal is shining a light on a critical problem for society and a large risk for companies that are involved.


      Fourth quarter, 2021 

      Engagement spotlight

      CalSTRS’ shareholder proposal prompts Phillips 66 to disclose climate policies

      Information can be powerful. CalSTRS’ investment staff, as part of our engagement process, often seeks information from companies about environmental, social and governance issues so we can monitor their progress in implementing sustainable business practices. These practices drive long-term value.

      We have been increasingly concerned about Phillips 66, an American energy company, because it had not disclosed information about its lobbying and climate change policies. Consequently, we were uncertain whether its lobbying activities aligned with the 2015 Paris Agreement. The agreement’s goal, which we believe is critical to stabilizing the world’s climate, is to limit global warming to well below 2 degrees Celsius from preindustrial levels.

      We urged Phillips 66 to disclose its lobbying policy and activities. We met with company officials, wrote letters and even addressed its board of directors. Then, in 2021, we escalated the pressure by writing a shareholder proposal—to be voted on by the company’s investors at its annual general meeting—directing Phillips 66 to disclose lobbying and climate change information. Next, we launched a campaign to get those who owned a majority of shares to vote in favor of the resolution. Despite opposition from Phillips 66, we prevailed.

      At the same time, a separate group of investors filed a proposal asking Phillips 66 to set and publish emissions reduction targets covering the greenhouse gas emissions of the company’s operations and energy products. That proposal, which we actively supported, also passed with the majority of investors supporting it.

      In September 2021, Phillips 66 became the first U.S.-based oil refiner to commit to lowering emissions that come largely from burning oil, natural gas and other fuels it sells. Phillips 66 committed to reducing these emissions (known as scope 3 emissions) to 15% below 2019 levels by 2030.

      In October 2021, Phillips 66 released a lobbying activity report that shows how the company’s policy goals align with the Paris Agreement and explains its emerging focus on renewable fuels, batteries, carbon capture and hydrogen.

      The result of both shareholder proposals: a company that was not participating in activities to curb climate change has now set emissions targets, disclosed a transition strategy and published a statement and report.

      Successful shareholder campaigns like these are occurring more frequently. They are driven by the rising awareness of the threat of climate change, the increased willingness of asset managers to confront it as part of their investment strategy, and the growing strength of groups such as Climate Action 100+, which focuses on influencing companies that release the most greenhouse gases. CalSTRS joined Climate Action 100+ in 2018 and the investor coalition now has 615 institutional investor members that manage $60 trillion in assets. One role of Climate Action 100+ is to publicize and gather support for shareholder proposals that effectively address climate change, such as the two proposals passed by shareholders of Phillips 66.

      Over the past several years the world’s largest asset managers have been supporting a higher percentage of climate-related shareholder proposals, according to a study by Ceres, a nonprofit organization that supports investor activism. In 2021,15 climate-related shareholder proposals gained majority investor support, more than twice those approved in 2020.

      Winning climate-related shareholder proposals: 15 in 2021, 7 in 2020

      Shareholder proposals are a proven method of creating change as companies seek to respond to the signals they receive from the majority of their investors. Phillips 66 is an example of how stronger engagement tactics can encourage recalcitrant companies to address climate change.

      Commitment to net zero

      CalSTRS has pledged to achieve a net-zero emissions investment portfolio by 2050 or sooner. This commitment makes it even more important to engage with companies to ensure they’re reducing their greenhouse gas emissions and preparing for a low-carbon future.

      The Teachers’ Retirement Board’s decision to commit to net zero is rooted in the promise of a secure retirement for California’s public educators and their families. Net zero means the amount of greenhouse gases emitted by humans is fully offset by the amount taken away, either by natural means, such as forests, or by technology, such as carbon capture and storage.

      Stewardship priorities update

      Corporate and market accountability

      New agency aimed at informing investors about sustainable business practices

      CalSTRS has long supported requiring companies to provide more complete information about how they incorporate sustainability into their business practices. This information helps investors make more informed decisions.

      A decision by the International Financial Reporting Standards Foundation, which sets required accounting standards in143 world markets, including the European Union, could go a long way toward expanding sustainability-related disclosure requirements throughout the world. That, in turn, could transform how investors integrate this information into their investment decisions.

      The foundation has created the International Sustainability Standards Board to develop and release guidelines that set a global baseline for corporate sustainability reporting. The ISSB will create a broad climate standard and then write standards for specific industries.

      CalSTRS plays a leadership role in encouraging companies to use the existing sustainability guidelines developed by the Sustainability Accounting Standards Board. While these standards are voluntary, more than 50% of companies in the S&P Global 1200 use them. The ISSB will build on SASB’s standards and the hope is that these new sustainability reporting standards will be required in the same jurisdictions where the International Financial Reporting Standards Foundation’s accounting standards are required.

      SEC approves a reform long sought by CalSTRS: Universal proxy ballots
      hand depositing paper into box labeled board election

      In September 2021, Phillips 66 became the first U.S.-based oil refiner to commit to lowering emissions that come largely from burning oil, natural gas and other fuels it sells. Phillips 66 committed to reducing these emissions (known as scope 3 emissions) to 15% below 2019 levels by 2030.

      New voting rules approved by the U.S. Securities and Exchange Commission in November 2021 will make elections for directors on company boards fairer, more flexible and less confusing. CalSTRS has advocated this change for years so all shareholders can choose the combination of directors they believe will best manage the company.

      In the past, shareholders who voted electronically—the way the vast majority of shareholders vote—had to choose between the board-endorsed ballot or the challenger ballot; they could not mix and match the candidates on each ballot. By contrast, voters who came to the annual shareholders meeting in person could vote for any combination of directors they wanted.

      The new rules, which are only relevant for contested board elections, require a universal ballot that contains the names of all the director candidates to be available to all shareholders. This allows all proxy voters, whether voting in person or electronically, to pick and choose between board-endorsed candidates and the challengers.

      Contested elections often take place at companies where shareholders are dissatisfied with company management and performance, making it even more important to allow shareholders to carefully select directors from a wide range of candidates. Now they can.

      Board effectiveness

      Corporate compensation clawback approved by the SEC

      Bonus and incentive pay for top corporate leaders is often based on the financial performance of a company. But what happens if a bonus is tied to a performance that is later revised downward?

      CalSTRS and many other investors have an answer: a compensation clawback.

      In October 2021, the SEC agreed. It proposed a new rule requiring stock exchanges to make companies adopt a compensation clawback policy. This would force company executives to return any part of a bonus or incentive pay based on performance information that is later revised downward.

      Low-carbon transition

      EPA regulations on the way for methane, a destructive greenhouse gas

      Methane has caused about 25% of climate change in the past 20 years and has about 80 times the climate warming impact of carbon dioxide, though scientists estimate it exists in the atmosphere for far less time than carbon dioxide.

      Generally, it has been lightly regulated. Until now. In fall 2021, the U.S. Environmental Protection Agency announced strict methane regulations as part of a proposed new Clean Air Act. CalSTRS has been advocating for this for years.

      Methane has caused about 25% of climate change in the past 20 years and has about 80 times the climate warming impact of carbon dioxide. Generally, it has been lightly regulated. Untow now.

      Methane is emitted from the extraction of oil and gas, the agricultural industry and landfills. The proposed rule targets oil and gas extraction and would eliminate 41 million tons of methane emissions from 2023 to 2035. That is more than the amount of carbon dioxide emitted from all passenger cars and commercial aircraft in the United States in 2019.

      Financial regulators sharpen focus on climate risks

      CalSTRS encourages regulators and policymakers to promote sustainable markets. A new report from the Financial Stability Oversight Council, a government group charged with identifying risks to the financial stability of the U.S. economy, marks significant progress toward this goal.

      The FSOC is chaired by the Secretary of the Treasury, who brings federal financial regulators together to identify and manage excessive risk in the financial system. We supported recent legislation to elevate the importance of climate change by creating a climate-related Financial Risk Advisory Committee to advise the council.

      In October 2021, the council issued a report on climate-related risks, which identified climate change as “an emerging and increasing threat to U.S. financial stability” and made several recommendations to agencies associated with the council, including the U.S. Treasury, the Federal Reserve System and the Securities and Exchange Commission.

      Recommendations include:

      • Collect climate risk data.
      • Enhance public-disclosure requirements to include greenhouse gas emissions.
      • Use scenario analysis to report on climate risk.

      These recommendations will provide critical information that investors need, and will aid us in adjusting our portfolio to achieve net zero emissions by 2050 or sooner.

      Third quarter, 2021 

      Engagement spotlight

      CalSTRS pledges a net-zero portfolio by 2050 or sooner

      At the September 2021 Teachers’ Retirement Board meeting, the board’s Investment Committee adopted a pledge for the CalSTRS Investment Portfolio to become net zero by the year 2050. A net-zero portfolio includes investments that do not increase overall greenhouse gas emissions in the atmosphere. Net zero can be accomplished by reducing human-caused emissions, removing existing emissions from the atmosphere, or a combination of both. This pledge is in alignment with the science-based targets of the 2015 Paris Agreement—a global accord between more than 190 countries that seeks to limit global warming to below 2 degrees Celsius to avoid the most severe impacts of climate change. Achieving net zero globally by the start of the second half of the 21st century is a key component of the Paris Agreement.

      The CalSTRS net-zero pledge is the first step of a four-part implementation framework:

      implementation framework process

      This framework is consistent with the United Nations’ Race to Zero campaign, the largest global effort to address climate change, and this pledge is the next step in navigating our portfolio through the shift to a low-carbon world.

      Quote from Harry Keiley


      CalSTRS sees positive diversity outcomes in the market

      In the last year, CalSTRS and other long-term institutional investors continued to push for board and workforce diversity at companies within our portfolio. Diversity is critical to companies’ long-term financial success, which in turn strengthens the Teachers’ Retirement Fund on behalf of California’s public educators and their beneficiaries.

      Studies repeatedly show that increasing board and workforce diversity is not only the right thing to do for an organization’s culture, but also leads to better business outcomes and smarter decision-making, plus powers innovation, among other benefits.

      Collectively, CalSTRS and our peers have been driving board changes on a case-by-case basis through letter writing campaigns, company engagements and proxy voting activities. We co-chair the Thirty Percent Coalition and the Human Capital Management Coalition, which focus on board and workforce diversity, respectively. We are also a leading member of the California Investors Group, which includes the California Public Employees Retirement System, the Los Angeles County Employees Retirement Association and the San Francisco Employees Retirement System, and work closely together to encourage gender, racial, ethnic and LGBTQ diversity on corporate boards.

      Specifically, we ask companies to:

      1. Appoint diverse board members or disclose existing diverse board members.
      2. Disclose a matrix of current board member skills and backgrounds, including diversity characteristics and how they align with the company’s forward-looking strategy to create and sustain value.
      3. Embed a commitment to identifying qualified candidates of diverse gender, racial and ethnic backgrounds, and the LGBTQ community, in key governance policies, such as the nominating and governance committee charter. 
      4. Incorporate procedures by which women, diverse racial and ethnic backgrounds, and the LGBTQ community are identified for consideration in every search for a board nominee (a practice commonly known as “the Rooney Rule,” after its use in the National Football League). 
      5. Assure that searches for new directors will consider suitable nominees from corporate backgrounds beyond the executive suite, and noncorporate backgrounds (academia, government, nonprofit organizations, etc.) where additional diverse talent may be identified.

      These collaborative efforts culminated in the following successes: 

      Thirty Percent Coalition

      After writing to 250 companies in the Russell 3000 Index, 127 companies appointed women to their boards. Of those, 65 companies with all-male boards appointed a woman for the first time and 62 companies appointed a second woman.

      California Investors Group

      After writing to 74 companies in the S&P 500, 52 companies appointed female and/or racially and ethnically diverse directors:

      • Twenty women and 36 men of underrepresented groups were appointed. 
      • Thirteen women not from underrepresented groups were appointed.
      • Twenty companies adopted the Rooney Rule—which requires women and underrepresented groups be included among interviewed candidates.
      CalSTRS diversity tour

      CalSTRS is committed to enabling a diverse pool of external investment managers to establish a direct relationship with us. We do this partly by establishing collaborative relationships across a vast network of industry associations. In summer 2021, we embarked on a virtual tour with seven industry organizations: TOIGO Foundation, National Association of Securities Professionals, National Association of Investment Companies, The Investment Diversity Exchange, Hispanic Heritage Foundation, The Association of Asian American Investment Managers, and New America Alliance. The meetings allowed us and those organizations to engage openly, exchange diversity, equity and inclusion initiatives, and identify potential opportunities to collaborate.

      Industry events

      While the COVID-19 pandemic led to severe restrictions on travel and in-person events, CalSTRS continued our record of strong representation at industry events through virtual participation to share and build knowledge:

      • Fixed Income Senior Delegate Roundtable – “ESG Investing—Easier Said Than Done” panel
      • Environmental Finance Webinar – “The Shifting Focus of Pension Funds” panel
      • CFA Institute: Americas Materiality Roundtable
      • The Economist – “Climate Change Transition Risks” panel
      • New Statesman – “Making Sense of Net Zero” panel
      • Sustainability Accounting Standards Board (SASB) Meeting
      • Securities and Exchange Commission – Meeting with SEC Chair on climate disclosure

      Stewardship priorities update

      Corporate and market accountability

      2021 proxy season highlights

      During the 2021 proxy season, CalSTRS voted nearly 100,000 proxies at more than 9,500 companies’ annual general meetings. Proxy voting is an important tool for shareholders to ensure their voices are heard on important issues related to the management of the company. Through proxy voting, shareholders elect directors to represent them in the boardroom. We view proxy voting as another asset to the fund, and a useful mechanism to open dialogue with companies. This year, like last, many annual general meetings were held virtually due to the COVID-19 pandemic. Despite the virtual environment, our staff met and engaged with more than 130 portfolio companies to discuss voting issues—a sizable increase from the 80 meetings held last season.

      In addition to proxy voting, shareholder proposals can communicate a consensus of views that may be a catalyst for a company to change or adopt best practice governance principles. This was a historic proxy season for environmental and social-related shareholder proposals, and a total of 81 proposals received majority shareholder support. This easily bested last year’s record-breaking 21 proposals with majority support. Notable and emerging social proposals were related to racial equity audits, lobbying and political contributions, human rights and workforce diversity. Emerging environmental proposals included climate action plans, greenhouse gas emissions, nuclear power and renewable energy. We vote on shareholder proposals, and occasionally file our own, when we perceive changes are needed at a company.

      Increase in failed say on pay votes for S&P 500 companies

      Thus far in the 2021 proxy season, 18 S&P 500 companies failed their say-on-pay vote. That is up from the 12 that failed in 2020. Of the varied reasons why support failed, we consistently saw misalignment between pay and performance and one-time payments or other incentive plan adjustments that resulted in payouts that would have otherwise not happened due to the COVID-19 pandemic. 

      Those companies that failed support for the reasons above typically had a track record of one-time awards and discretionary adjustments in the past. One-time payments and discretionary adjustments come with extra scrutiny because they could potentially undermine the principle of a company’s established incentive plans. Say on pay is important to investors because it’s a means to ensure the interest of company executives is aligned to that of shareholders.

      Japan corporate governance: Engagement and progress

      CalSTRS staff also engages with domestic and international regulatory entities to advocate for positive changes in corporate governance practices globally. A highlight of the 2021 proxy season is the continued engagement and progress seen with representatives from Japanese companies and regulatory and proxy advisory firms. 

      As a significant investor in Japanese companies, we are keenly interested in corporate governance practices in Japan. In June 2021, the Tokyo Stock Exchange released a revision of Japanese Corporate Governance Code that focused on key issues of board independence, diversity and sustainability. This was a significant positive step toward modernizing corporate governance in Japan.

      Enhanced diversity-focused voting

      CalSTRS held companies accountable by increasing the number of votes against boards with zero women in the 2021 proxy season. Over time, CalSTRS, other institutional investors and proxy advisory firms have refined voting policies regarding board diversity. We will continue to review and revise our voting practices to further incentivize portfolio companies to increase gender, racial, ethnic and LGBTQ board diversity.

      Board effectiveness

      Pandemic Resilient-50

      CalSTRS is part of the Pandemic Resilient-50 (PR-50) coalition, which is comprised of nine institutional investors with more than $3.8 trillion assets under management. The PR-50 is conducting a multiyear engagement initiative targeting 50 companies most affected by the pandemic. The PR-50 has corresponded with the target companies and met with 35 of them to understand how their response to the pandemic, to date, should inform the next phase of the engagement.

      Members of Pandemic Resilient-50:

      • Achmea Investment Management—Netherlands 
      • APG Asset Management NV—Netherlands
      • BNP Paribas Asset Management—France 
      • British Columbia Investment Management Corporation (BCI) —Canada
      • California State Teachers' Retirement System—United States of America
      • Domini Impact Investments LLC—United States of America 
      • Etica Funds (ETICA SGR S.p.A.)—Italy 
      • Legal & General Investment Management—United Kingdom 
      • Resona Asset Management Co. —Japan 

      Low-carbon transition

      Lobbying proposals

      Publicly traded companies have been put on notice by shareholders asking them to “walk the talk” when it comes to transparency on political activities involving climate—a priority of our net-zero strategy.

      In the 2021 proxy season, climate lobbying proposals gained shareholder approval at Phillips 66, Norfolk Southern, ExxonMobile, United Airlines and Delta Airlines—a record for votes getting majority support in a single year. This recent success has resulted in a number of companies voluntarily reaching out to our staff to discuss their willingness to produce a lobbying report, driven by their desire to avoid shareholders’ filing a proposal to request one. Climate lobbying reports are an opportunity for a company to reassure investors about how it uses its financial influence to support climate initiatives at federal, state and local levels and to avoid contradictory positions.

      Having a company voluntarily produce a climate lobbying report saves our staff considerable time and resources normally required to file a shareholder proposal and allows staff to focus on other low-carbon transition engagements.

      Successful 2021 proxy season climate lobbying proposals


      Responsible firearms

      Through research and engagement with companies regarding the sale of ghost guns—privately assembled firearms lacking commercial serial numbers—CalSTRS identified legal, reputational and financial risks that contribute to violence in communities across the country. We developed a plan to influence the firearms industry through regulatory channels by supporting a proposal aimed at eliminating ghost guns. Since the purchases are considered legal and credit card companies do not receive data regarding the items being sold, they are incurring risk associated with this practice—a risk that is passed on to our portfolio.

      Understanding that violence associated with ghost guns creates additional health and safety risks to society at large, and negatively impacts the financial condition and operating performance of businesses, we submitted a letter to the Bureau of Alcohol, Tobacco, Firearms and Explosives. The letter supported an ATF proposal to require identifying markings, background checks and transaction records for the sale of key firearms parts. We support regulations requiring all sales of ghost guns be processed through federally licensed retailers following established best practices, including conducting background checks and keeping accurate records of transactions to ensure children and prohibited individuals do not have access to firearms.

      Second quarter, 2021 

      Engagement spotlight

      Historic win at ExxonMobil

      On May 26, 2021, shareholders delivered a resounding message to the management of ExxonMobil when they elected three directors to the board who had been nominated by activist investment manager Engine No. 1. This marks the first time in the company’s history that directors they did not support were elected to their board. CalSTRS was the first investor to announce support of Engine No. 1’s slate of alternate directors when it was introduced in December 2020. The backing of a significant investor such as CalSTRS brought immediate legitimacy to the board candidates nominated by Engine No. 1, and our support contributed to the successful campaign. This action by shareholders reinforces the message that ExxonMobil and other publicly traded companies can no longer continue with the status quo. Change is necessary for long-term success.

      We recognized the need for a shakeup in the boardroom and supported director nominees who have the relevant skills and experience to strengthen long-term performance, resiliency and strategic positioning. This form of stewardship is in alignment with CalSTRS’ Stewardship Priorities of board effectiveness and low-carbon transition. Of the incumbent board members, only the chairman, who is also the CEO, has any experience in the oil and gas industry. At the same time, the company has undergone an extended period of financial underperformance. These new board members add desperately needed expertise in significant business transformation and experience at both renewable and traditional energy companies. Additionally, ExxonMobil has lagged many of its peers in preparing its business to undergo the strategic transition toward a low-carbon economy by focusing capital expenditures on carbon energy sources.

      Download CalSTRS Stewardship Priorities

      This victory is the outcome of a longer-running series of escalating engagement tactics at ExxonMobil. When traditional tactics of engagement such as meetings with the company failed to deliver meaningful results, we implemented our new strategy of activist stewardship—a heightened and more targeted approach to engagement. The ExxonMobil campaign sought to replace a significant portion of the board. Leading up to the company’s annual general shareholder meeting in May, we participated in a large array of media appearances and engagements with fellow investors and other market participants to build the case for change at ExxonMobil.

      Arrow representing a continuum, going from black to red.

      While every company is unique in its governance, strategy and operations, the campaign at ExxonMobil provides a useful blueprint for future engagements. We will continue to refine our stewardship activities to best remain an influential voice in the economy. This influence affords us the ability to prepare our investment portfolio for the global transition to a low-carbon economy, while maximizing returns for California’s educators.

      Industry events

      While the COVID-19 pandemic led to severe restrictions on travel and in-person events, CalSTRS continued our record of strong representation at industry events through virtual participation:

      • CalPERS and CalSTRS 2021 Diversity Forum – We co-hosted a virtual diversity forum with more than 900 participants focused on promoting diversity, equity and inclusion in the investment industry.
      • Pensions & Investments – Participated in the “Qualifying as ESG: How to spot a wolf in sheep’s clothing” panel discussion.
      • Private Equity International – Participated in the “Structuring impact to go mainstream with institutional investors” panel discussion.
      • Pension Bridge – Participated in the “Climate change: Impact, risks and opportunities” panel discussion.
      • CFA Institute Brazil – Participated in the “Brave new world: Integrating ESG into portfolios” panel discussion.
      • Fitch Ratings and CFA Institute – Participated in the “Climate change across portfolios, sectors and regions” panel discussion.
      • CFA Institute – Participated in a roundtable focused on materiality.
      • GreenFin 21 – Participated in the “Investment value chain live—Environmental” panel discussion.
      • JP Morgan Global ESG Conference – Participated in the “ESG in the U.S.: A new dawn” panel discussion.
      • SASB Standards Board – Participated at a board meeting on current research projects and standard setting.
      • Reuters ESG Investment North America Conference 2021 – Participated in the “Financing the 1.5o pathway” panel discussion.
      • Financial Times Investing for the Good: Europe event – Participated in the “In a fast-moving market, does active beat passive for sustainable investing?” panel discussion.
      • Association of Investment Management Sales Executives 2021 Conference – Participated in the “ESG: It’s what’s for dinner” panel discussion.

      Stewardship priorities update

      Corporate and market accountability

      CalSTRS supports mandatory climate disclosures to the SEC

      In response to the U.S. Security and Exchange Commission’s request for comments on climate disclosures, CalSTRS submitted a letter registering our support for mandated universal and industry-specific climate disclosures. We asked the SEC to require registered companies of all sizes in all industries to disclose both direct and indirect emissions. We also asked for annual reporting on their governance, strategy, risk assessment, targets and metrics for managing the low-carbon transition. We also encouraged the SEC to require companies to disclose the broad set of material sustainability information investors need, including human capital metrics. The SEC is expected to move to rulemaking quickly following its review of public comments. We view climate disclosures as crucial to investors in understanding the climate risks faced by companies. This information allows investors to identify and consider in their decisions which companies can be resilient and contribute to a low-carbon future.

      SEC rulemaking agenda prioritizes CalSTRS’ top issues

      Looking at the SEC’s 2021 rulemaking agenda, we expect this year will offer more opportunities to support stronger ESG disclosure and market accountability through strengthened regulatory requirements and enforcement. This rulemaking agenda could culminate in positive action in the areas we have raised to the SEC through our letters and meetings with SEC staff and our collaborative engagement with investor coalitions. In the past three months alone, our staff has participated in six virtual meetings with SEC commissioners (five of them with the SEC Chair), advocating for our stewardship priorities.

      Low-carbon transition

      Progress with Climate Action 100+ at Toray Industries and Phillips 66

      CalSTRS leads in shareholder engagement at eight companies as part of the Climate Action 100+ initiative. Seven of the companies have already announced carbon neutrality goals, including Toray Industries, an industrial chemical product company. At the company’s 2021 financial briefing presentation, Toray Industries announced its commitment to achieve carbon neutrality by 2050. The company aims to achieve the target through expanding carbon neutral technologies, including renewable energy, hydrogen and electrification, and cutting emissions through recycling and process innovation.

      The remaining company is Phillips 66. At the Phillips 66 annual meeting in May, 62% of voting shareholders supported a CalSTRS proposal asking the oil and gas company to address concerns regarding corporate lobbying activities that are inconsistent with the Paris Agreement on climate change. In supporting the proposal, a majority of voting shareholders are recommending that Phillips 66’s board of directors conduct an evaluation and issue a report within the next year describing if, and how, the company’s lobbying activities align with the Paris Agreement’s goal of limiting average global warming to well below 2 degrees Celsius. Additionally, a second proposal passed asking the company to set and publish emission targets.

      Other notable events in the oil and gas industry

      A CalSTRS-supported shareholder resolution was passed at Chevron Corporation with 61% shareholder support. The resolution asks the company to substantially cut scope-three emissions (those produced by the use of the oil, gas and other products it sells). Furthermore, a Dutch court ruled that Royal Dutch Shell must cut its emissions by 45% (from 2019 levels) by the year 2030. We are seeing an increase in pressure from investors and governments on companies to make meaningful cuts to emissions and prepare for a low-carbon economy.

      Responsible firearms

      The proliferation of ghost guns is a major concern of gun-control advocates. These untraceable weapons are increasingly recovered at crime scenes, many times in the hands of those who would not otherwise be able to lawfully purchase a firearm.

      A ghost gun is a self-assembled firearm built from kits or individually purchased parts that do not have an identifying serial number. They can be made using common household tools allowing anyone, including convicted felons and other prohibited individuals, access to firearms and makes it difficult for law enforcement to understand the history of ghost guns recovered at crime scenes.

      As part of our Stewardship Priorities, we have learned from firearm experts that the sale of ghost gun kits and parts is primarily conducted by small retailers, online retailers and at gun shows. We are directly engaging credit card companies that facilitate many firearms transactions to discuss the safety and risk concerns, particularly regarding transactions occurring online. No firearms retailers in the CalSTRS Investment Portfolio are involved in the sale of ghost gun kits or parts.

      bar chart showing number of ghost guns recovered between 2016 and 2020

       According to the federal Bureau of Alcohol, Tobacco, Firearms and Explosives, from January 1, 2016, through December 31, 2020, there were approximately 24,000 suspected ghost guns recovered by law enforcement, including 325 that were used in homicides or attempted homicides.

      First quarter, 2021 

      Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation for the period of January 1 through March 31, 2021, are listed below.

      Engagement spotlight

      California Board Diversity Initiative expands geographic focus after six years of successful campaign

      In 2015, CalSTRS and CalPERS launched the California Board Diversity Initiative to engage California-headquartered companies who lacked board diversity and had zero women on their corporate boards. This decision was driven by research showing that companies with diverse boards attain better financial results, on average, than those without diversity.

      Over the next four years, CalSTRS collaborated with other California pension systems (CalPERS, LACERA and SFERS) to encourage companies to improve their corporate board diversity. The group sent letters to California-based companies in the Russell 3000 Index asking nominating and governance committees to include individuals with diverse backgrounds on their board, inclusive of gender, race, ethnicity, and LGBTQ+ identity.

      The initiative’s efforts were bolstered by the California legislature passing, and the governor signing, Senate Bill 826 in 2018. This law required the corporate boards of California-based companies to have at least one woman director by the end of 2019.

      By mid-2020, 150 companies in the Russell 3000 Index had appointed 186 women to their boards, and only five of the companies originally engaged by the coalition had failed to appoint any women directors. When private engagement with two of these companies failed to produce outcomes, CalSTRS escalated efforts by co-filing shareholder proposals. The three other companies agreed to appoint women to their boards.

      infographic showing 2.4% of boards have received gender parity
      As of the end of 2020, Source: Equilar, an executive compensation and corporate governance data firm

      Building on its success, the group has now shifted its focus toward companies headquartered outside of California. The re-named California Investors for Effective Board Diversity is now engaging 74 companies in the S&P 500 index and asking companies to improve board diversity inclusive of gender, race, ethnicity, and LGBTQ+ identity. As shown in the graphic above, there is still much work ahead to diversify corporate board rooms and reach gender parity in the United States. The coalition intends to leverage its techniques and prior engagement successes as a roadmap to push for ongoing change.

      Industry events

      While the COVID-19 pandemic led to severe restrictions on travel and in-person events, CalSTRS continued its record of strong representation at industry events through virtual participation:

      Stewardship priorities update

      Responsible firearms

      In January, investors with more than $2 trillion in assets under management met virtually with some of America’s largest firearms retailers to focus on best safety practices for the sale of civilian firearms. The meeting was initiated by the CalSTRS-led Principles for a Responsible Civilian Firearms Industry. This first of its kind meeting was significant, as 2020 marked a record year for firearms sales in the United States.

      During the meeting, retailer representatives discussed their safety precautions for firearms purchases. The conversation focused on best practices in the areas of firearms transportation and storage, employee training, and customer education.

      Retailers stressed the need to track each firearm individually as it enters the custody chain through distributions centers. Radio-frequency identification (RFID), which uses electromagnetic fields to identify and track merchandise, was cited as an example of how technology can be used to enhance safety. Retailers also rely on a two-person serial number match verify the accuracy of firearms inventory. The group also addressed safety concerns that led to the removal of firearms from display cases at some retail locations.

      Investors learned that the companies have robust training and certification programs. This includes training on how to spot irregularities at the point of sale, specifically with regards to background checks and straw-buyers. The training is continuous and focuses on how to demonstrate and educate customers on safe firearms handling and storage. Additionally, the companies shared that their training continues throughout an associate’s career. One company shared that its compliance team conducts surprise drills which emulate safety inspections conducted by the Federal Bureau of Alcohol Tobacco and Firearms.

      The companies agreed to continue to work with investors and meet regularly to discuss methods for reducing risk and improving safety in the sale of civilian firearms. Lessons learned will be used by CalSTRS to engage other entities throughout the firearms industry.

      Corporate and market accountability

      CalSTRS promotes best practices for virtual-only shareholder meetings

      Due to the spread of COVID-19 in early 2020, restrictions on travel and in-person meetings accelerated the transition toward virtual-only shareholder meetings (VSMs). In 2016, there were just 187 VSMs and in 2020, there were 1,957 VSMs. Many companies indicated they will maintain the practice in the future. CalSTRS participated in a working group to develop best practices and protect shareholder rights at VSMs.

      After engagement, U.S. Department of Labor suspends enforcement of final rule on ESG investments and proxy voting

      In March, the U.S. Department of Labor (DOL) announced it will suspend enforcement and revisit a recently adopted rule regarding environmental, social and governance (ESG) investments and proxy voting. This rule would have applied to retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The DOL heard from many stakeholders, including CalSTRS, on the proposed rule and its impacts. While CalSTRS is not subject to ERISA, CalSTRS urged the DOL to reject the proposal. CalSTRS opposed the rule because it would have created a perception that retirement plans need special justification to consider ESG factors when making investments. As a long-term investor, CalSTRS sees the integration of ESG risks into the investment decision-making process as an important part of our fiduciary responsibility to our members.

      Download letter from CalSTRS to DOL
      Investors representing a quarter of capital markets back SASB

      CalSTRS was a founding member of the Sustainability Accounting Standards Board (SASB) Investor Advisory Group (IAG) in 2016. Originally 14 members, the IAG has grown to 57 members with combined assets under management of more than $47 trillion, representing a quarter of global capital markets. CalSTRS is pleased to contribute to this group of investors who recognize the need for comparable, consistent, and reliable disclosure of financially material, decision useful ESG information to investors. Most recently, CalSTRS contributed to SASB’s Human Capital Management Framework research project, which seeks to identify the financially material impacts of relevant human capital management issues.

      CalSTRS supports development of global sustainability standards

      In 2020, the International Financial Reporting Standards Foundation (IFRS) asked for feedback on whether the foundation should engage in the development of sustainability reporting standards. CalSTRS submitted a letter to encourage the IFRS to serve the needs of investors, who are the primary users of the reported data. CalSTRS also encouraged the IFRS to use existing standards and frameworks to build upon the well-established and well-supported work developed to date.

      Download letter from CalSTRS to IFRS

      In February 2021, the IFRS announced it received enough support to take an active role in ESG disclosure. CalSTRS was encouraged to learn in March 2021 that the IFRS would maintain an investor focus and build on existing frameworks, in line with CalSTRS requests. CalSTRS will continue to advocate to the IFRS and other bodies that sustainability standards should encompass the full range of material sustainability risks and opportunities facing businesses.

      CalSTRS discusses corporate governance trends with Japanese ministry

      CalSTRS met virtually with Japan’s Ministry of Economy, Trade, and Industry (METI) to share views on corporate governance trends as a long-term institutional investor. CalSTRS shared our observation that many Japanese companies adopted long-term corporate governance frameworks but failed to set plans for short or medium time horizons. Our team also expressed support for majority independent directors on corporate boards and committees.

      Board effectiveness: Human capital management

      CalSTRS advocates for human capital management disclosures at SEC

      In March 3, CalSTRS met virtually with the office of Allison Lee, the Acting Chair of the U.S. Securities and Exchange Commission (SEC). CalSTRS encouraged the SEC to require companies to report human capital management data as part of the material environmental, social and governance (ESG) disclosures already required by Regulation S-K. This meeting was a follow-up from a meeting with SEC staff in August 2020 and letter outlining our recommended metrics for disclosure. CalSTRS supports mandatory universal and specific disclosures consistent with the Human Capital Management Coalition. These disclosures would be in addition to industry-relevant metrics described by the Sustainability Accounting Standards Board.

      Download letter from CalSTRS to SEC

      Low-carbon transition

      Update on CalSTRS-supported activist campaign with ExxonMobil

      In December 2020, CalSTRS announced its support for an alternate slate of directors at ExxonMobil in an effort to prepare the company for the global low-carbon transition. CalSTRS joined the campaign because our prior engagement activities with the company had failed to produce meaningful results. CalSTRS issued a statement in February 2021 stating that ExxonMobil’s underperformance, declining returns on capital expenditures, and undisciplined capital allocation continued to erode shareholder confidence and value in the company.

      Climate Action 100+ releases annual report, CalSTRS continues to play leadership role

      Climate Action 100+, a global investor initiative representing $52 trillion in assets, released its annual progress report. Climate Action 100+ reports that half the companies targeted by the organizations have established commitments to reach net-zero carbon emissions by 2050 or sooner.

      Alongside Climate Action 100+, CalSTRS is the engagement lead of eight companies, four located in Japan and four in the United States. Out of the eight companies, five companies (Duke Energy, Southern Company, Dominion Energy, Daikin Industries, and ENEOS) committed to net zero by 2050 or earlier, one company (Nippon Steel) committed to a 30% greenhouse gas emission reduction by 2030, and one other (Torray Industries) committed to a 30% greenhouse gas intensity reduction. CalSTRS continues to engage Phillips 66 to secure an emission reduction commitment. CalSTRS recently escalated engagement by filing a shareholder proposal asking Phillips 66 to prepare a report on how the company’s lobbying activities align with the Paris Climate Agreement. This proposal will be voted on at the company’s Annual General Meeting in May.


      Fourth quarter, 2020 

      Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation for the period of October 1 through December 31, 2020, are listed below.

      Engagement spotlight

      CalSTRS supports alternate board members for ExxonMobil

      In December 2020, CalSTRS announced our support for an alternate director slate for ExxonMobil in partnership with investment firm Engine No. 1. We believe the alternate slate will equip ExxonMobil with the relevant skills and experience needed to strengthen the company’s long-term performance, resiliency and strategic positioning.

      CalSTRS has a long track record of engaging companies and voting proxies to influence meaningful change. At Exxon, there remain multiple warning signs about the company’s financial performance and its strategic planning for the global energy transition. We believe it’s time for change at the top of the company and we intend to use our proxy votes to support the alternate slate of directors, if nominated, at the next annual shareholders meeting in May 2021.

      In supporting these directors to the board, CalSTRS is pioneering a new engagement tactic we are calling ‘activist stewardship.’ In this new approach, we are combining our role as a constructive, engaged shareholder with deep financial analysis, while using the full suite of activist tools available to us to create change.

      Industry events

      While the COVID-19 pandemic led to severe restrictions on travel and in-person events, we continued our record of strong representation at industry events through virtual participation:

      Stewardship priorities updates

      Corporate and market accountability

      SASB and IIRC announce merger, paving way for global ESG reporting standard

      In November 2020, the Sustainability Accounting Standards Board and International Integrated Reporting Council announced their intent to merge into a single entity, the Value Reporting Foundation, to simplify standardized sustainability corporate reporting. We view this merger as a positive development as the corporate reporting landscape is currently fragmented across several different entities. We support the movement toward globally accepted ESG reporting standards and continue to play a leadership role in SASB’s Investor Advisory Group, after CalSTRS Chief Investment Officer Chris Ailman was its inaugural chair.

      CalSTRS opposes U.S. federal rulemaking efforts on proxy voting

      In early October 2020, we issued a letter to federal agencies regarding a proposed rule on proxy voting and shareholder rights that would limit when and how private retirement plans and their asset managers can cast proxy votes. In our letter, we expressed our concerns around the proposal. We view our proxy votes as assets of the plan, and we assume a fiduciary obligation to vote them solely in the interest of our members. This proposal would add additional burdens and expenses for shareholders like us to cast votes while fundamentally challenging longstanding practices on proxy voting and good governance practices.

      Download letter from CalSTRS to EBSA

      Board effectiveness: Human capital management

      We have long supported corporate reporting on board member diversity. In December 2020, the Nasdaq stock exchange filed a proposal with the Securities and Exchange Commission to adopt new listing rules related to board diversity and disclosure. If approved, the new rules would require all companies listed on Nasdaq’s U.S. exchange to publicly disclose consistent and transparent diversity statistics regarding each company’s board of directors. Additionally, the rules would require most Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+. We submitted a letter in support of Nasdaq’s proposal.

      Download letter from CalSTRS to SEC

      Low-carbon transition

      CalSTRS files shareholder proposal at Phillips 66

      In November 2020, we filed a shareholder proposal at Phillips 66, a global energy manufacturer, asking the company to prepare a report on how the company’s lobbying activities align with the Paris Climate Agreement. We are a lead engager of Phillips 66 as part of our activities with Climate Action 100+. We filed this proposal because we recognize that corporate lobbying activities that are inconsistent with the goals of the Paris Agreement present financial, legal and reputational risks to investors like us. We hope the proposal will gain other investor support and drive change at Phillips 66. We will continue to engage Phillips 66 on this proposal before the upcoming proxy season in May 2021.

      CalSTRS secures reduced emission commitments, Japan pledges net zero

      As part of our activities with Climate Action 100+, we are the lead engager of four Japanese-based corporations: Daikin Industries, ENEOS, Nippon Steel and Torray Industries. We secured net zero emissions commitments from Daikin Industries and ENEOS while securing emission reduction commitments from Nippon Steel and Torray Industries. Net zero is achieved when the amount of greenhouse gases emitted by a company equals the amount of GHGs removed by it. In October 2020, Japanese Prime Minister Yoshihide Suga announced the country will aim to reduce its carbon emissions to net zero by 2050.

      CalSTRS engages on flaring of natural gas in Texas

      Alongside other investors, we sent a letter to the Railroad Commission of Texas supporting the elimination of routine natural gas flaring by 2025. Flaring is defined as the controlled burning of natural gas by energy producers. It’s an important environmental issue to investors like us because it represents wasted natural resources and increased greenhouse gas emissions. Shortly after, the RRC revamped its application for flaring exceptions that creates more limits on flaring in Texas. This is a step in the right direction to reduce the climate impacts of natural gas production and distribution and is an example of how investor support for policy action can lead to meaningful change.

      Responsible firearms

      Researchers from Wellesley College estimate that almost three million additional firearms were sold since March 2020 compared to average sales in January and February. The findings, detailed in a report published by the Brookings Institute, are providing insight into the factors that fueled the record number of firearms purchases in 2020.

      Researchers used FBI data to track daily firearms sales as Americans responded to the COVID-19 pandemic and civil unrest during the spring and summer months of 2020. Sales spikes during this period coincide with significant events, such as the President Trump’s declaration of a national emergency in March, the killing of George Floyd in Minneapolis in May, and protests across the country for racial justice in June. Additionally, industry experts estimate that as many as 40% of the purchases made were by first-time firearm owners.

      With an understanding of this data, CalSTRS, along with other investors, are convening a gathering of firearms retailers in January 2021 to discuss best practices at the point of sale. The discussion will focus on evaluating safety in four areas related to firearms: transportation and storage, employee training and customer education, background checks, and inventory and audits. The information gathered will direct engagement strategies to reduce risk and promote safety in all areas of the firearms industry.

      Third quarter, 2020 

      Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation for the period of July 1 through September 30, 2020, are listed below.

      Engagement spotlights

      Highlights from the 2020 proxy season

      In the wake of the COVID-19 pandemic and the resulting market disruption, CalSTRS observed several notable trends in the 2020 proxy voting season, including the global transition to virtual annual general meeting (AGM) formats. The virtual meetings highlighted a heightened focus on board effectiveness, particularly with respect to crisis management and business continuity and resulted in greater shareholder attention on director attendance at meetings and effective management of human capital and supply chains.

      Against this backdrop, we tightened our vote policy on board diversity and increased our scrutiny of executive compensation plans. As a result, we voted against 551 public company boards that had no gender diversity as we believe the effectiveness of these boards is seriously weakened since it has been shown that diverse teams financially outperform those that are not. In addition, we took a stronger stance on the alignment of pay and performance, resulting in us voting against 33% of U.S. executive compensation plans versus 15% the previous year.

      Two notable actions this season include our votes against the executive compensation plans at The Walt Disney Company and Uber Technologies, Inc. due to concerns about poor plan structure and CEO pay magnitude. A significant number of other shareholders joined us in opposing the proposals at rates of 46% and 29%, respectively. While this is the first year that Uber has had an AGM since the company went public in 2019, the opposition vote toward Disney represents an increase over the previous year’s rate of 39%. According to a report by executive compensation consulting firm Semler Brossy, thus far in 2020 the average rate of support for executive compensation plans at U.S. companies has been over 90%. Disney and Uber fall well short of this industry average. Both votes send a strong message to the companies that investor scrutiny regarding their compensation is escalating and requires additional engagement and ultimately reform.

      in 2020
      CalSTRS voted over 91,000 proxies
      at 9,000 company shareholder meetings

      Protecting the rights of shareholders: Activities with regulators

      This proxy season, we observed increased regulatory-related activity with respect to oversight of proxy advisors, shareholder rights in submitting shareholder proposals, and environmental, social and governance (ESG) issues generally. We have a vested interest in safeguarding shareholder protections within the rules and regulations of the U.S. and global securities markets. In alignment with our stewardship priority of corporate and market accountability, staff continues to monitor and respond to proposed legislation and regulations that affect institutional investors and, like many of our peers, have been alarmed by recent developments that threaten to weaken investor rights:

      • We responded to proposed rule changes by the Securities and Exchange Commission. The proposed changes introduce substantive hurdles that impact the ability of investors to efficiently vote proxies in a timely manner, which is an extremely concerning development for investors who rely heavily on voting at company AGMs to influence robust corporate governance practices. Furthermore, the changes hinder shareholders’ ability to file proposals on issues that we believe are not being adequately addressed by company management.
      • Alongside over 60 other nonprofits, institutional investors and businesses, we supported a letter from CERES seeking engagement with several federal financial regulators on climate change-related risks. The letter highlights CERES’ report, Addressing Climate as a Systemic Risk: A call to action for U.S. financial regulators, which examines the wide-ranging and compounding impacts of climate change on the stability of U.S. financial markets. We have and will continue to policy advocacy as part of our Low-Carbon Transition Work Plan.
      • We submitted a letter to the Department of Labor on its proposed rule regarding ESG funds that appears to fundamentally distort why investors seek to integrate ESG issues into investment decision making. The letter stressed the importance of our responsibility to ensure that the corporations and entities in which we invest strive for long-term sustainability and achieve long-term growth. The proposed rule drew widespread attention and received over 1,100 comment letters. We will continue to engage the DOL on ESG-related issues in order to preserve capital flows to this growing and vital market need.
      Download letter from CalSTRS to EBSA

      Industry events

      While the COVID-19 pandemic led to severe restrictions on travel and in-person events, we continued our record of strong representation at industry events through virtual participation:

      We played an active role in these events to showcase CalSTRS’ leadership, build relationships that improve our collaboration within the industry and stay informed of global best practices in sustainable investing.

      CalSTRS stewardship priorities updates

      Board effectiveness

      Launch of Pandemic Resilient – 50

      In response to the COVID-19 pandemic, CalSTRS and a group of institutional investors formed a collaborative initiative called Pandemic Resilient – 50. The group of investors represents approximately $3 trillion in assets under management. The Pandemic Resilient – 50 will engage companies to understand the impact of those most affected by the pandemic. The group selected 50 global companies:

      • Where employees were acutely affected by the pandemic.
      • With high potential for reputational risk.
      • That failed to provide adequate disclosure on changes in policy and practices resulting from COVID-19.
      • Who were immediately impacted by the pandemic reducing demand for goods or services.

      This multiyear engagement initiative will focus on board oversight of business continuity, employee health and well-being, and financial alignment as a means of promoting sustainable business practices and driving long-term value creation.

      Low-carbon transition

      Dominion Energy, a CalSTRS-led Climate Action 100+ engagement company, agreed in July to sell its gas transmission (pipelines) and storage assets to Berkshire Hathaway Energy in a transaction valued at $9.7 billion. The company also announced it was cancelling the Atlantic Coast Pipeline (ACP). The ACP project was a 600-mile $8 billion natural gas pipeline owned by Dominion Energy and Duke Energy, another CalSTRS-led Climate Action 100+ engagement company. These decisions by Dominion and Duke align with the engagement requests by Climate Action 100+ investors for utility companies to move to a more electrified and renewable future. The engagement has resulted in the companies making commitments to net-zero emissions in their operations and demonstrating a strategic repositioning toward being resilient in a low-carbon future.

      Responsible firearms

      Early this summer, the CalSTRS-led Principles for a Responsible Civilian Firearms Industry investor collaboration met with major firearms retailers to discuss point-of-sale policies, including background checks, employee training and customer education. Private and public companies informed us that they require a background check to complete firearm transactions. Additionally, the companies say they have customized software that prevents a sale from processing without a successfully completed background check.

      While engagements with companies have been positive, the data on United States gun sales raises concerns. Using data from the FBI, the group Everytown for Gun Safety found that gun sales in the U.S. reached record levels in spring and summer 2020 while the national background check system was overwhelmed with requests. The data indicates that 300,000 Americans may have acquired firearms without completing the required background check during the COVID-19 pandemic. Dubbed “The Charleston Loophole” in reference to a 2017 mass shooting in South Carolina, federal law allows firearms dealers to release a weapon if an FBI background check takes longer than three business days to complete. The graph below illustrates the sustained increase in sales starting in March 2020.

      There are more than 50,000 federally licensed firearms dealers in the U.S.

      chart showing U.S. firearm sales between September 2019 to August 2020
      Second quarter, 2020 

      Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation for the period of April 1 through June 30, 2020, are listed below.

      Engagement spotlights

      The effects of the COVID-19 global pandemic are heightening the value of portfolio company engagements. In response to this crisis, CalSTRS initiated a prompt global response alongside the Principles for Responsible Investment, the Business & Human Rights Resource Centre and fellow investor APG.

      apg logo
      Principles for Responsible Investment logo
      Business and Human Rights Resource Centre logo


      As a group, we developed comprehensive questions that institutional investors can ask companies in order to better understand each company’s response to the pandemic. These questions were launched through the PRI’s Collaborative Engagement Platform and guide investors in building a collective response to COVID-19. Three key themes that resulted from the guidance are:

      • Business continuity—for employers, suppliers and communities.
      • Employee health and well-being—to ensure an engaged workforce.
      • Alignment with long-term value creation.

      CalSTRS and other institutional investors held exploratory discussions to develop an action plan to use the guidance in the engagement of portfolio companies most impacted by COVID-19. Collectively through engagement, we can highlight companies responding well to the pandemic as well as continue to engage and shape those companies that fail to adequately respond.

      AGM Season 2020: Investor questions on COVID-19


      Highlights from the 2020 proxy voting season

      Renewed focus on environmental, social and governance disclosures

      CalSTRS continues to vote all global proxies with diligence and care in alignment with our Corporate Governance Principles. With the impact of COVID-19, we have witnessed heightened sensitivity to environmental, social and governance disclosures and elevated discussions at company annual general meetings, particularly around social concerns. Specifically, the issues of human capital management and worker risks have moved to the top of investors’ list of sustainability-related topics. Given the current environment, focus on board effectiveness has become more prominent as we assess how company boards are overseeing and managing risks associated with COVID-19.

      CalSTRS withholds votes for all directors at Exxon Mobil in 2020

      Concern over governance practices and a continued refusal to adequately address climate-related risks led us to withhold votes for all directors of the Exxon Mobil board at the company’s May annual general meeting. The vote is consistent with our long-standing belief that climate change presents significant risk to our portfolio. Several other large investors, including BlackRock, also chose to vote against specific directors—sending a strong signal to the company about the urgent need to more meaningfully engage with shareholders and position the company to successfully navigate the transition to a low-carbon economy.

      Industry events

      While the COVID-19 pandemic led to severe restrictions in travel and in-person events, CalSTRS continued our record of strong representation at industry events through virtual participation.

      We played an active role at the following events to showcase CalSTRS leadership, build relationships that improve our collaboration with other industry participants and ensure we are informed of global best practices in sustainable investing.

      • New America Alliance Momentum Impact Webinar: Diverse and emerging investment managers.
      • PRI and London Stock Exchange Group panel keynote discussion: Building momentum ahead of the 2021 United Nations Climate Change Conference.
      • Council of Institutional Investors webinar on capital allocation: Corporate governance best practices.
      • PRI webinar on COVID-19 and the 2020 AGM season: Investor response to the COVID-19 crisis.
      • Southern Company stakeholder meeting: Climate Action 100+ focus company.
      • Conference Board webinar on investor expectations and engagement during the COVID-19 crisis: Peer to peer leadership network for best practices.
      • Equilar webinar on board composition through the COVID-19 crisis: Best practices around board recruiting, executive compensation and shareholder engagement.
      • Harvard Business School case study lecture: Responsible firearms engagement.

      Stewardship priorities updates

      Corporate and market accountability

      CalSTRS advocates for shareholder rights at the SEC

      CalSTRS responded to proposed rule changes by the Securities and Exchange Commission. The proposed rule changes introduce substantive hurdles that impact the ability of investors to efficiently vote proxies in a timely manner and also deteriorate shareholders’ resubmission rights on shareholder proposals filed at portfolio companies. We will continue to engage the SEC on these issues to protect shareholder rights.

      Download letter from CalSTRS to SEC

      Board effectiveness: Human capital management

      CalSTRS supports guidance regarding worker-related disclosures

      Through the Human Capital Management Coalition, CalSTRS reacted quickly to the SEC’s guidance in April 2020 regarding corporate disclosures related to COVID-19. The SEC’s guidance asks companies to facilitate robust disclosure and engagement with investors on:

      • Where the company stands today, operationally and financially.
      • How the company’s COVID-19 response, including efforts to protect the health and well-being of its workforce and customers, is progressing.
      • How its operations and financial condition may change as efforts to fight COVID-19 progress.

      CalSTRS will continue to partner with HCMC to engage companies to understand how company boards are working to ensure their long-term sustainability amidst this crisis.

      Low-carbon transition

      Southern company sets net-zero emissions goal
      Southern Company logo

      Southern Company announced a goal to reduce its greenhouse gas (GHG) emissions to net-zero by 2050. The company’s announcement, made in May at its annual meeting, also reaffirmed Southern’s intermediate goal of a 50% reduction of GHG emissions from 2007 levels by 2030, and possibly as early as 2025. Even more impactful, these are enterprisewide goals across all of the company’s electric and gas operations.

      CalSTRS led the engagement with Southern Company as part of the Climate Action 100+ initiative. To achieve the net zero goal, the company will continue increasing its investment in renewable energy, modernizing the grid to optimize technology advancements, decreasing the use of coal, building new nuclear generating units, continuing its industry-leading, robust research and development efforts, and investing in energy efficiency for savings on both sides of the meter. The company will also incorporate negative carbon solutions, including technology-based approaches such as direct air capture of carbon as well as natural methods like afforestation.

      Responsible firearms

      Principles for a Responsible Civilian Firearms Industry: Dick’s Sporting Goods rebuilding a team image

      Dick’s Sporting Goods, a key study of CalSTRS’ firearms engagement, is looking to reestablish its image as it transitions hunting and firearms out of 440 stores by the close of 2021. In 2018, the company became unpopular with gun rights advocates who called for a nationwide boycott of the retailer following a decision to remove firearms inventory from an initial 125 locations.

      The company refocused its image to attract new customers by supporting team sports and community, saying, “giving back and doing what’s right is ultimately what makes us successful.” The changes eventually resulted in increased online sales and same-store sales in the fourth quarter of 2019.

      As part of an engagement with the company, we learned they are transitioning from hunting and firearms and replacing the inventory with higher-margin products, such as golfing and sports fan apparel. We will continue to engage with firearms retailers to identify and advocate for best practices in firearms safety across the industry.

      Dick's Sporting Goods firearms footprint
      First quarter, 2020


      Fourth quarter, 2019Third quarter, 2019Second quarter, 2019First quarter, 2019


      Fourth quarter, 2018Third quarter, 2018