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R-Factor, we barely knew thee. Launched in 2019, State Street is apparently now bidding adieu to its proprietary scoring system, the R-Factor – which stood for “Responsible-Factor” – or at least, not incorporating it into voting decisions this season. Karla pointed out that it no longer appears in the firm’s “Proxy Voting and Engagement Guidelines” other than in the closing notes. Last year’s guidelines had said:

R-Factor™ is a scoring system created by State Street Global Advisors that measures the performance of a company’s business operations and governance as it relates to financially material ESG factors facing the company’s industry. R-Factor™ encourages companies to manage and disclose material, industry-specific ESG risks and opportunities, thereby reducing investment risk across our own portfolio and the broader market. State Street Global Advisors may take voting action against the senior independent board leader at companies on the S&P 500 that are R-Factor™ laggards and momentum underperformers and cannot articulate how they plan to improve their score.

As a follow-up to its position as a “long-term corporate partner,” which I blogged about on our Proxy Season Blog last fall, and consistent with BlackRock, SSGA has also backed away from hot-button “ESG” terminology and partnerships. Karla flagged these updates:

• About State Street Global Advisors – Revised wording somewhat to align with December 2022 changes to same section in “Global Proxy Voting and Engagement Principles,” primarily removing “As stewards, we help portfolio companies see that what is fair for people and sustainable for the planet can deliver long-term performance.”

• Environmental And Social Issues – Revised wording somewhat to align with December 2022 changes to same section in “Global Proxy Voting and Engagement Principles,” primarily removing “We use our voice and our vote through engagement, proxy voting, and thought leadership in order to communicate with issuers and educate market participants about our perspective on important sustainability topics.”

But perhaps the most significant change on the “ESG” front is that SSGA has significantly abbreviated its “Climate-Related Disclosure” policy. The old policy said:

We believe climate change poses a systemic risk to all companies in our portfolio.

State Street Global Advisors has publicly supported the global regulatory efforts to establish a mandatory baseline of climate risk disclosures for all companies. Until these consistent disclosure standards are established, we find that the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) provide the most effective framework by which companies can develop strategies to plan for climate-related risks and make their businesses more resilient to the impacts of climate change.

As such, we may vote against the independent board leader at companies in the S&P 500 and S&P/TSX Composite that fail to provide sufficient disclosure in accordance with the TCFD framework, including:

• Board oversight of climate-related risks and opportunities

• Total Scope 1 and Scope 2 greenhouse gas emissions

• Targets for reducing greenhouse gas emissions

The 2023 guidelines continue to encourage providing TCFD-related disclosures – but they no longer threaten “against” votes for companies that omit GHG emissions data or targets for reducing greenhouse gas emissions. Here’s the new language:

State Street Global Advisors finds that the recommendations of the Taskforce on Climate related Financial Disclosures (TCFD) provide the most effective framework for disclosure of climate-related risks and opportunities. As such, we may take voting action against companies in the S&P 500 and S&P/TSX Composite that fail to provide sufficient disclosure regarding climate-related risks and opportunities related to that company, or board oversight of climate-related risks and opportunities, in accordance with the TCFD framework.

We don’t know whether the SEC will take this change into account as it works towards finalizing its climate disclosure rule, but it seems to detract from the notion that investors resoundingly want emissions data.

– Liz Dunshee