State Street Global Advisors (SSGA) voted against reinstating board directors of more than 500 companies in the United Kingdom, U.S. and Australia that have no women on their boards and have taken no action to improve board diversity, despite engagement by the asset manager, according to Rakhi Kumar, senior managing director, head of ESG investments and asset stewardship at SSGA. The news coincides with the recent releasing of SSGA’s Annual Stewardship Report, 2017, an annual look at SSGA’s asset stewardship program process, used to monitor and report on the impact SSGA is having on improving environmental, social and governance (ESG) practices at the companies in its global portfolios.
SSGA has $2.7 trillion in assets under management (AUM) and holds more than 12,000 listed equities across its global portfolios. As part of the Stewardship program, it reviewed and rated all of the companies in its equities portfolios, using developed proprietary in-house screening tools to help identify companies for active engagement, based upon various financial and ESG indicators. “These efforts are aimed at promoting long-term sustainable returns on behalf of our investors,” wrote Global Chief Investment Officer Rick Lacaille, in the report.
SSGA believes that acting proactively will be the key to success in this initiative. “The program is focused on having an impact through the use of our voice and our vote,” said Kumar. “If we are saying we are monitoring ESG issues, then the companies we invest in need to be transparent about it. It’s our way of communicating with our clients about what we do on their behalf,” she said.
SSGA kicked off the program with the initiation of the “Fearless Girl” gender diversity campaign, in 2017, which, through a letter writing campaign, called on more than 787 companies in the U.S., Australia, and the United Kingdom that have no women on their boards, to add at least one woman. Within a year, more than 20 percent of the companies responded to the call and have added a woman board member.
SSGA’s use of “active engagement” includes using screening tools designed to capture a mix of company specific data, including governance and sustainability profiles, to help focus SSGA’s voting and engagement activity. According to the report, “we actively seek direct dialogue with the board and management of companies we have identified through our screening processes. Such engagements may lead to further monitoring to ensure that the company improves its governance or sustainability practices. In these cases, the engagement process represents the most meaningful opportunity for State Street Global Advisors to protect long-term shareholder value from excessive risk due to poor governance and sustainability practices.”
SSGA also engages with “reactive members,” or “companies that wish to solicit our votes or seek feedback on corporate governance and sustainability issues as shareholders. These meetings are typically initiated by the company, who drive the meeting agenda,” according to the report.
The asset manager define success as when at least one of the following two things happens:
• A company implements changes to their ESG-related programs, practices or processes consistent with our engagement or voting feedback
• Several market participants, such as asset owners, asset managers, consultants, regulators and proxy advisory firms, are influenced by our thought leadership on thematic ESG issues”
Gender diversity and board composition
So far, SSGA engaged with 123 companies on board composition and gender diversity, in particular. Companies were typically given a year to add a woman to the board, however, SSGA worked with many companies individually, allowing more time when finding eligible candidates proved to be difficult, in particular at companies based in Japan, Kumar said.
Since the engagement process began in 2017, 152 companies have now added a woman to their board, while 34 more companies have committed to doing so. Going forward, SSGA has a goal of expanding its initiative to Japan and Canada, providing board diversity guidance for more than 1,200 additional companies in those two countries.
SSGA has also engaged 108 companies on climate change, since 2014. “Over the course of four years, we found that few companies can effectively demonstrate to investors how they integrate climate risk into long-term strategy. Given our support for the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, we will engage with companies to review the quality of climate reporting and understand how boards oversee climate-related risks,” the report said.
Since last year, SSGA has performed a total of 2,297 ESG engagements, 1,621 of which were through a letter-writing campaign and 676 included in-person meetings or via conference calls, during which various ESG issues were discussed. Eighty-five percent of the 676 engagements were classified as “active” engagements. The remaining 15 percent of engagements were reactive, conducted primarily to discuss proxy voting-related or event-driven ESG issues.
An index investor, SSGA looks at companies from a thematic point of view as well as from a sector focus. “We identify three sectors a year, so over a three to four year period, we can cover all the sectors in an investor’s equity portfolio,” Kumar said.
In 2017, SSGA also collaborated with global institutional investors to launch a set of corporate governance and stewardship principles for the US market, called The Investor Stewardship Group (ISG) Principles. The program helped establish a set of minimum investor expectations on corporate governance practices for US companies.
The Fearless Girl statue, created by artist Kristen Visbal, was commissioned by SSGA as part of its ESG campaign, and stands facing the infamous Wall Street Charging Bull, in Bowling Green, in the Financial District of New York City. The statue of the bold girl caused quite a stir when it was first placed there, last year. It also irked the artist who created the bronze bull sculpture–which was originally deemed “guerrilla art,” because it was installed, without permission, in front of the New York Stock Exchange in December 1989, by artist Arturo Di Modica.
Due to its popularity, the bull became a permanent fixture on Wall Street. It cost $350,000 of the artist’s own money to create, and is currently on loan to the New York City Department of Parks and Recreation. In 2017, Di Modica opposed the installation of the Fearless Girl sculpture calling it an “advertising trick” created by SSGA and the advertising firm McCann. For the time being, however, it remains there, drawing in tourists from around the world.