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Portfolio > Portfolio Construction > ESG

State Street Wants Companies to Disclose Climate-Related Strategies

By Bernice Napach

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State Street Global Advisors, the world’s third largest asset manager, is intensifying efforts for corporate boards to help combat climate change.

(Related: State Street Wants Companies to Focus on Sustainability)

Eights months after its CEO, Ron O’Hanley, wrote to board members that it will consider a company’s sustainability practices in its proxy votes, it is calling on corporate boards of oil and gas, utilities and mining companies to consider climate change as a significant risk and adopt long-term strategies to protect corporate assets from its impact.

(Related: How ESG Funds Have Changed Corporate Behavior)

State Street wants companies operating in what it terms “high-impact sectors” to:

  • Disclose information on governance and board oversight of climate risk
  • Establish and disclose long-term greenhouse gas emissions goals
  • Disclose average and range of carbon price assumptions
  • Discuss the impact of scenario planning on long-term capital allocation decisions

(Related: ESG Investing: No Longer Optional, but Essential)

“Disclosures in those four areas give investors the information that can help them evaluate the robustness of assumptions made in the scenario-planning process and the impacts on long-term strategy,” according to recent report from State Street.

Scenarios could include, for example, regulatory changes to limit the increase in global temperature to under 2 degrees Celsius (3.6 degrees Fahrenheit), which is the basis for the Paris Climate Change accord. (Even though the U.S. has withdrawn from the agreement companies can choose to adopt policies that support the accord.)

State Street says it developed its four-point guidance following 240 climate-related engagements with 168 companies that found “few companies” could “effectively demonstrate to investors how they integrate climate risk into long-term strategy.”

The asset manager is “not asking oil and gas companies to stop producing oil and gas” but to plan for different scenarios, develop long-term strategies and communicate those strategies to investors, says Rakhi Kumar, head of the ESG Investing and Asset Stewardship group.

During the first half of 2017 State Street joined several other institutional investors in voting for proxies at ExxonMobil, Occidental Petroleum and PPL Corp. that instructed the companies to report on the impact of climate change on their businesses. It was on the winning side of all three votes. State Street also manages several ESG ETFs, including fossil fuel-free and low carbon index ETFs.

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