State Street presses corporates for TCFD-aligned climate risk disclosures
Major investment manager State Street has said that it will take voting action against companies that fail to measure their greenhouse gas emissions and to disclose climate risk in line with the Task Force on Climate-related Financial Disclosures' (TCFD) framework.
In his annual letter to the chief executives of companies in State Street Global Advisors’ (SSGA) portfolios, the firm’s president and chief executive Cyrus Taraporevala has stated that, while many companies have “come a long way in disclosing and managing climate-related risks” in recent years, “there remains much progress to be made” in the transition to net-zero.
The letter expresses specific concern that “few” companies have provided a clear roadmap to net-zero, with around four-fifths of the world’s 2,000 largest listed firms yet to publicly announce a specific time-bound target. It states that while, to date, “fewer asset managers” have provided detail on how they expect corporates to disclose amid the net-zero transition, this is likely to change fairly swiftly. Contributing factors include TCFD mandates from national governments including the UK and the recent launch of the International Sustainability Standards Board (ISSB), which is working to unify ESG disclosures from corporates to help investors make informed decisions.
Taraporevala wrote: “While the path ahead may be relatively straightforward for some companies, in general, we believe that the transition will be very hard and non-linear for most. We anticipate that many companies will likely need to adopt approaches that require experimentation, innovation, and ongoing adjustments along this unchartered journey.”
The letter confirms that companies in SSGA’s portfolio that are headquartered in the US, Canada, EU, UK or Australia will need to disclose their emissions across all scopes, including indirect emissions, lest SSGA considers taking voting action against directors. The changes will begin this AGM season. Firms in these geographies will also need to produce TCFD-aligned reporting on climate risk.
Also confirmed in the letter is a forthcoming “targeted engagement campaign” from SSGA, which will ask for more information from high-emitting companies on their emissions, climate-related governance, environmental policies and how their investment plans are likely to affect emissions. The campaign will be launched this year.
The letter from Taraporevala follows on from annual letters from Aviva Investors’ chief executive Mark Versey and BlackRock Boss Larry Fink. Both emphasized the importance of better climate risk disclosures and greater investment in the technologies, industries and processes that will drive the net-zero transition.
Versy’s letter arguably goes further than the others. It states that Aviva’s investment decisions will be guided by the climate approach of businesses, as well as whether they are adopting stakeholder business models, championing diversity and inclusion and demonstrating effective leadershio. Executive pay at businesses Aviva supports, Versey wrote should be tied to all of these factors.
Taraporevala, on the other hand, hints that SSGA may still increase investments in “transition” sectors including natural gas and calls a swift shift to renewable energy “improbable”.
Leading by example?
As for SSGA’s own targets, Taraporevala has confirmed that it will publish new financed emissions targets for 2030 by the end of 2022. It will also publish its own TCFD-aligned report by this April.
SSGA is notably a member of the Net-Zero Asset Managers Initiative, which requires members to work towards net-zero by 2050 or sooner, in a 1.5-aligned temperature pathway. The initiative has 220 signatories that collectively manage $57trn of assets.
However, it has repeatedly faced criticism over its sustainability approach. This time last year, a report from non-profit InfluenceMap analysed how closely the portfolios of 15 of the world’s largest finance firms aligned with the Paris Agreement’s two pathways, and the ways in which these businesses have voted in climate-related resolutions and engaged in climate-related lobbying. State Street was found to be engaging the companies it invests in on climate issues, but without using climate models such as scenario analysis in line with the Paris Agreement. Other firms facing that same accusation from InfluenceMap included Vanguard, BlackRock, Morgan Stanley and JP Morgan Chase.
More recently, State Street was accused by Global Canopy of failing to prevent deforestation caused by the companies it invests in and lends to. Global Canopy’s 2022 Forest 500 report found that 93 of the world’s largest financial firms do not have robust anti-deforestation policies. These firms, the NGO claims, have collectively provided more than $2.6trn of investment in, and lending to, the 350 corporates that are the most exposed in the world to deforestation risks.
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