State Street’s 2022 Agenda: ESG and More

ESG and Diversity & Inclusion

In a broad ranging interview with PJT Camberview's Managing Director and COO Erica Lukowski, Ben Cohen from State Street Global Advisors (SSGA) outlined the organization's plans to continue its proactive approach to company engagement on ESG issues. Cohen, SSGA's Global Co-Head of Asset Stewardship, discussed plans to prioritize climate change, human capital management, and diversity and inclusion in its engagements, noting that the firm will continue adding resources to its Stewardship team as it pursues its objectives.

• On climate risk, Cohen acknowledged the potential unintended consequences of climate commitments, noting it may be more effective to support directional progress and avoid pressure that may result in companies simply selling bad ("brown") assets to private equity to meet "Net Zero" commitments.
   
• On the HCM front, Cohen said that SSGA has become more proactive in engaging companies, seeking to gather information on challenges and best practices. Cohen disclosed that this research will form the basis of a document outlining best practices and expectations for HCM disclosure, although he didn’t give a target date for publication.
   
• An early proponent of the disclosure of EEO-1 data, Cohen reiterated SSGA's view that although such data may not reflect how the company views its workforce, it provides a "comparable baseline framework" for investors. He noted that SSGA encourages companies to add their own narrative and additional data to better tell their story. Moving beyond workforce and board representation, he said SSGA is encouraging boards to do more to oversee risks related to the impact of their company's business on communities of color. 
   
• On executive compensation, Cohen admonished companies for not engaging with SSGA in the early stages of revising pay plans following a low say-on-pay vote, criticizing belated attempts to engage as an after-the-fact "tick the box" approach. When asked if ESG metrics should be included in executive pay plans, Cohen expressed skepticism that the metrics companies select are quantifiable and sufficiently challenging. When metrics are included in pay plans, SSGA believes they should be in the long-term program. 

The bottom line: SSGA continues to proactively push companies on HCM and D&I issues. The upcoming publication of a best practices and expectations document on HCM disclosures bears watching, as it is likely to generate significant interest among companies and other interested parties. In the D&I area, the push to expand director accountability beyond representation considerations and into the impact of the company's business on underrepresented communities is noteworthy.