The value of CalSTRS engagements
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.
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.
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:
- CALAPRS panel: “What Is the Role of Trustees in Corporate Policies?”
- Climate Action 100+ engagements with Duke Energy and Dominion Energy
- Corporate Board Member panel: “Conscious Capitalism: Understanding Investors’ Expectations for 2021″
- IFC, CERES and CalSTRS’ co-hosted Roundtable Discussion on impact investing
- Investment Institute Virtual Fall Forum panel discussion on ESG integration in investment
- Legal & General Investment Management panel for the Human Capital Management Coalition
- Office of Rhode Island Treasurer panel: “Strengthening Corporate Diversity in the Boardroom, How Investors and Companies Promote the Importance of Diversity“
- Pensions & Investments World Pension Summit panel: “Beyond Divestment”
- SASB Annual Symposium panel on sustainability disclosure standards
- UC Berkeley School of Law webinar: “Changing Investor Expectations on ESG”
- World Gold Council EVOLVE Investment Summit panel on sustainable investment
- 2020 Women on Boards panel: “Women Leaders Changing the World” with California State Senator Hannah-Beth Jackson and California Secretary of State Alex Padilla
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 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.
Board effectiveness: Human capital management
CalSTRS supports Nasdaq proposal on board diversity
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 in support of Nasdaq’s proposal.
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.
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.