Pension fund ready to send climate change message

BOSTON (SHNS) — Just as they used their stance to push companies on racial and gender diversity, managers of the state’s $104 billion pension fund took another step Thursday trying to use the size of the state’s investment portfolio to force corporate leaders to take action on climate change.

Later this month, the Pension Reserves Investment Management Board will consider a new rule that would force the fund to vote against directors of companies that don’t align their corporate policies with global and state reduction goals. issues at annual shareholders’ meetings.

An alternative to divestment, the strategy is favored by Board Chair and State Treasurer Deb Goldberg, who sees the potential to influence corporate behavior by engaging with companies while maintaining obligation trustee of the pension fund towards the beneficiaries. The pension fund had a banner year in 2021, reaching $104.3 billion, an increase of 20.1% from a value of $17.4 billion.

PRIM’s administration and audit committee voted unanimously on Thursday to recommend to the full board that pension fund managers vote against directors of companies that “have not aligned their business plans on targets to limit global warming to 1.5 degrees Celsius, as set out in the Paris Climate Accord, and/or who have not established a plan to achieve net zero emissions by 2050.”

“It’s the best kind of work to do because not only does it benefit our beneficiaries, but it also has external benefits and it’s a productive approach to ensuring economic stability,” Goldberg said.

Last year, Goldberg signaled his intentions to seek this policy change at PRIM in February, building on his efforts over the past seven years to also use PRIM’s proxy voting power to push for more racial and gender diversity in the companies in which the pension fund invests.

Since taking office in 2015, Goldberg has been behind PRIM’s decision to increase its corporate diversity requirements. The fund now has a policy requiring it to oppose or withhold its vote for board nominees at companies where at least 35% of the board is not diverse in terms of race and gender. sex. The threshold has been increased over time from 25%, and PRIM as of last year no longer combines racial and gender equity when calculating diversity for proxy voting purposes.

Ellen Hennessy, compliance analyst and head of records access at PRIM, said proxy voting policies led to a significant increase in negative votes in director elections in 2021.

PRIM voted against management in 28% of all votes in 2021, according to Hennessy, and voted no in 94.9% of director elections. Votes against corporate directors were up from 64.9% in 2020 when PRIM calculated diversity by combining gender and race to reach 35%.

Goldberg championed the proxy voting approach to achieving social change, though she acknowledged that PRIM alone cannot force companies to comply with diversity and climate guidelines.

“Investors as a whole — pension funds, foundations and actual investors — have begun to vote collaboratively under similar guidelines,” Goldberg said. “Therefore you will start to see increased compliance and interest and again that is a much better approach in terms of shareholder activists because we see this as a real fiduciary duty because of the business risk involved,” Goldberg said.

While Goldberg and pension plan officials said they believe companies have begun to consider shareholder voting habits and improve corporate diversity while delivering strong returns for investors, officials said it was “too early” to tell what impact shareholder engagement will have on corporate climate policy.

The approach contrasts with steps taken by Boston Mayor Michelle Wu and advocated by some lawmakers and advocates of fossil fuel pension fund divestment. Wu signed an order in November to divest $65 million of municipal investments to companies profiting from fossil fuels.

“Climate change will take longer to show these results, but it is clearly having an effect because companies are aware of what is happening,” said Theresa McGoldrick, PRIM board member and executive vice president. National Association of Government Employees.

A Treasury official told the committee he was monitoring the fate of bills related to divestment, joining PRIM and incorporating environmental, social and governance factors into fiduciary duty, and would report at a future meeting after the deadline for committees to take action. passed Wednesday.

The official also noted that Baker, in his budget proposal for fiscal year 2023, proposed an additional transfer of $250 million to the pension fund.

The Board and Audit Committee voted Thursday in favor of Goldberg’s motion to recommend to PRIM’s board the creation of an environmental, social and governance committee to advise the board on ESG issues.

Among its 2022 goals, PRIM officials said they intend to move forward with investing $1 billion in capital from diverse and emerging fund managers as part of its progress toward compliance with a 2021 diversity law signed by Governor Charlie Baker requiring PRIM to increase its supplier diversity to 20%.

Dolores W. Simon