The value of CalSTRS engagements
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.
Investor expectations during COVID-19
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.
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.
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 . 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.
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 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.
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.
Southern company sets net-zero emissions goal
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.
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.