Dive Brief:
- The Massachusetts Pension Reserves Investment Management Board updated its proxy voting policies this month, with clearer guidelines to how the board will vote on topics of sustainability, biodiversity and executive pay, ahead of this year’s proxy vote season.
- The updated policy document, which went into effect March 1, laid out twelve topics MassPRIM has developed customized guidelines for, spanning environmental, social and governance issues. The guidelines also include voting policies on issues of climate change, renewable energy and board diversity, among others.
- MassPRIM Director of Stewardship Veena Ramani said the board regularly updates its proxy guidelines to reflect the latest research and insights. “The updates that were made this year are intended to maintain our existing leadership position on climate change and sustainability and be responsive to evolving investor engagement on these issues,” Ramani said in an emailed statement to ESG Dive.
Dive Insight:
The updated guidelines were unanimously approved at a Feb. 15 board meeting, according to meeting minutes obtained by ESG Dive. MassPRIM said it developed the custom voting policies around these topics because “these issues are the most important and scrutinized corporate governance topics among institutional investors.”
The pension fund said it recognizes the increasing belief among investment professionals that sustainability or ESG factors “could present material risks to portfolio investments.” The proxy vote guidelines state the board will support shareholder initiatives that “seek for enhanced disclosure and transparency,” as well as those that support the adoption of or adherence to norms and standards for sustainability and climate issues.
“MassPRIM favors a reporting and compliance environment that advances positive corporate ESG actions that promote practices that present new opportunities or mitigate related financial and reputational risks,” the guidelines say.
The pension board said as investors are increasingly recognizing that environmental and social factors can be material to investment decisions, “additional disclosure on sustainability issues would position investors to make better decisions.” The board said it will “generally” vote for proposals seeking “greater” disclosures on a company’s environmental or social practices and/or risks, unless the company provides this information in another forum. The board said it will also generally vote for proposals asking companies to align their disclosures with reporting frameworks from the Global Reporting Initiative, the International Sustainability Standards Board or the Taskforce for Climate-Related Financial Disclosures.
The board also said it will generally vote for resolutions that call for companies to disclose their impacts on biodiversity or align their biodiversity disclosures in a way that is aligned with the Taskforce on Nature-Related Financial Disclosures.
On executive pay, the state pension fund said its evaluations will focus on five principles: Appropriate pay-for-performance alignment, “with emphasis on long-term shareholder value;” avoiding arrangements that risk “pay for failure;” maintaining an “independent and effective compensation committee;” providing shareholders with transparent compensation disclosures; and avoiding inappropriate compensation to non-executive directors.
The board’s climate-related voting guidelines said it will also generally support shareholder climate change proposals that seek additional information on financial, physical or regulatory climate-change related risks unless that information is already disclosed and proposals calling for the reduction of greenhouse gasses or adopting GHG goals, “unless the proposal’s request in unduly burdensome or overly prescriptive.”
“The physical and transition impacts of climate change are increasingly recognized as posing material, and even systemic risks and opportunities to a range of companies, their operations and their value chain,” MassPRIM’s guidelines say. “Investors increasingly expect companies to assess their climate risk exposure and develop transition plans that address how they plan to reduce such risk, including reducing GHG emissions.”
The board said it will take a case-by-case approach to climate proposals from management or shareholders that provide shareholders with a say on a company’s climate transition or GHG reduction plans.
The updated guidelines come after environmental group Sierra Club gave MassPRIM a “D” grade on its voting transparency and proxy voting guidelines in January — contrasted with an A+ grade for its voting record. The pension got a cumulative grade of “C+.”
The environmental nonprofit examined public pension funds in Democratic-led states and gave no funds an “A” grade for their proxy voting guidelines when it comes to the climate and related risks.
Allie Lindstrom, a senior strategist for Sierra Club’s Fossil-Free Finance campaign, said in a release that MassPRIM’s updated voting guidelines “complement already strong climate and emissions policies,” and its inclusion of biodiversity risk language make the state pension fund “one of the first to incorporate this critical topic into their proxy voting guidelines.”
Though Sierra Club’s Massachusetts chapter applauded MassPRIM’s efforts to engage on climate, it said funds should also “strongly consider environmental justice, indigenous rights, systemic risks, political contributions, and biodiversity” when assessing climate risk.
