Feb. 4, 2020
Comment on File S7-22-19 Dear Ms. Countryman, I write as an individual investor who is deeply concerned about the proposed SEC Rules related to the filing of shareholder resolutions. I have participated as a cofiler of resolutions on important governance , social and environmental issues. In doing so I have worked with my investment manager which manages my portfolio. I believe it is important to protect the rights of small individual investors so they can participate in petitioning companies using shareowner resolutions if they so wish . Even though I am a small personal investor , I believe the issues I have helped raise with companies are important from a personal viewpoint but also in protecting the value of our portfolios. Yet the SEC seems to be promoting an anti-shareholder agenda by creating a set of significant hurdles for any investor wishing to file resolutions. It makes me worry that I or other small individual investors may need to hire a lawyer to navigate these new rules if they were put in place. That is far from being investor friendly ! So please count me as opposed to this new complicated set of Rules. We should be opening the door for people who put their funds into the market to be able to have access to companies where they are shareholders, not place obstacles in their path . The recent announcement and stories about State Street drew my attention and i wanted to use it as an example as I urge you to rethink the SEC’s limits on shareholder resolutions. I ask you to study this is detail and assess how the new Rules would provide an impediment to State Street and other managers and investors as they seek information to make informed decisions. As you will see in the stories below , State Street has announced it will press companies on ESG including climate change which will also affect their votes on Board members . They have created something they call a “ responsibility factor” , which lets them evaluate and score companies on their ESG record . This is turn informs and affects their engagements with companies and even decisions on how they will vote on selected Board members. But essential to their work is information and information on a company’s ESG record. And we all know the level of meaningful disclosure varies greatly among companies . Thus it is important to have an open process to be able to address companies and encourage them to provide full information especially on financially material issues. This is where the shareholder resolution comes in . As we look back on 50 years of ESG resolutions we see that a significant number of them asked companies to report on diversity metrics, or environmental programs, or political and lobbying expenditures, or human rights in the supply chain . As State Street’s announcement reinforces, these are not fringe issues that can be dismissed as “ political “ or unrelated to the bottom line. They are relevant and important in assessing risk a company faces for example. Yet the SEC proposals make it more difficult for a small investor like myself, or a foundation, religious investor or pension fund to file a resolution seeking such information with a recalcitrant company. In that sense, the SEC’s proposed rules serve to block the ability of State Street which votes on such resolutions to use an important tool to expand their information base. And it certainly limits the ability of average investors from joining resolutions seeking such information . In that sense the SEC is not helping investors of any size in their desire to be effective stewards of their investment portfolios. I would urge you to vote to delay this proposed rule until more study can be done. Sincerely, Robert Andrew Davis Edith Parkman Homans [redacted] ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- State Street announces it will press companies on ESG including climate change which will affect their votes on Board members . Building on BlackRock’s announcements on their climate expectations of companies. https://amp-ft-com.cdn.ampproject.org/c/s/amp.ft.com/content/cb1e2684-4152-11ea-a047-eae9bd51ceba State Street vows to turn up the heat on ESG standards Fund manager will vote against boards of companies that lag behind peers Robin Wigglesworth in Oslo, January 28, 2020 12:30 pm State Street’s $3.1tn investment arm is planning to start voting against the boards of big companies that lag behind on environmental, social and governance standards, a threat that is likely to reverberate in many corporate boardrooms. State Street Global Advisors, one of the biggest shareholders in many blue-chip companies thanks to its position as one of the world’s largest index fund providers, last year introduced what it calls a “responsibility factor” — a scoring system that measures how well companies do on various ESG metrics. Starting this coming proxy season, SSGA will “take appropriate voting action” against board members at big US, UK, Australian, Japanese, German and French companies that are laggards based on this measure and “cannot articulate how they plan to improve their score”, according to a letter being sent out to boards this week. Initially SSGA will focus on a smaller cohort of companies that are performing particularly poorly, but beginning in 2022 it will also start voting against the board members of all companies that have consistently underperformed their peers. “Ultimately, we have a fiduciary responsibility to our clients to maximise the probability of attractive long-term returns — and will never hesitate to use our voice and vote to deliver better performance for them,” said Cyrus Taraporevala, SSGA chief executive, in the letter. “This is why we are so focused on financially material ESG issues.” Diversity, sustainability and climate change have moved towards the top of corporate agendas in recent years, with many investors demanding that companies do better on a wide variety of matters that fall under the ESG umbrella. European investment groups have led the charge by targeting individuals over apparent ESG failings. Legal & General Investment Management voted against the election of 3,864 directors globally in 2018, citing climate change, diversity or other governance factors. UBS Asset Management and Allianz Global Investors have also increased their votes against directors over ESG-related concerns. US fund managers have generally been more reluctant to take similar actions, but State Street said a related diversity push since 2017 has managed to get 583 companies to add or commit to adding women to their boards. Meanwhile BlackRock’s founder Larry Fink sent a letter this month to corporate executives arguing that “in the near future . . . there will be a significant reallocation of capital” because of the threat of climate change, in particular. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance,” Mr Fink wrote, saying that the $7tn-in-assets investment group would incorporate ESG fully into its investment framework and insist on companies disclosing sustainability-related metrics. SSGA’s “R-factor” is based on a system constructed by the Sustainability Accounting Standards Board, a San Francisco-based non-profit. In 2018 SASB rolled out an ESG disclosure framework designed specifically for investors, which has now been adopted by money managers with more than $30tn of assets. State Street sees the SASB’s framework as a minimum set of standards that companies should reach, and uses it together with other data inputs to rank companies both against local and industry peers. Companies can ask SSGA for their scores. Tying the R-factor to how it will vote may help State Street shape the disparate ESG ratings industry. “We believe a company’s ESG score will soon effectively be as important as its credit rating,” Mr Taraporevala wrote. Some investment group executives have been concerned that embracing ESG too zealously might alienate some clients, or stir up concerns that the asset-management industry’s biggest players have too much sway in corporate boardrooms. Wary of being accused of over-reach, investment groups stress that improving ESG standards, especially with respect to climate change and diversity, is vital because of the real financial consequences for companies. “We believe that addressing material ESG issues is good business practice and essential to a company’s long-term financial performance — a matter of value, not values,” Mr Taraporevala said in his letter. Additional reporting by Attracta Mooney -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- TriplePundit In its annual letter to boards sent yesterday, State Street Global Advisors, the $3 trillion-plus investment arm of State Street, redefined what it considers “shareholder value.” The letter is signed by Cyrus Taraporevala, CEO and president of the Boston-based investing giant. With it, he includes a suggested environmental, social and governance (ESG) oversight framework designed for company directors who are still trying to get their heads wrapped around ESG and what it means. As if Milton Friedman hasn’t been rolling around in his grave enough already, Taraporevala goes on to argue that shareholder value is increasingly driven by challenges such as climate change, labor practices and consumer product safety. Responding to these challenges is "a matter of value, not values," he contends, adding: "We believe that addressing material ESG issues is good business practice and essential to a company's long-term financial performance." State Street Global Advisors first called on boards to consider sustainability across the ESG spectrum back in 2017 and has since engaged with a number of companies around ESG issues. The world's third largest asset manager also made its mark on the financial sector with efforts like the Fearless Girl campaign, which sought to increase the number of women on corporate boards. Still, there’s plenty of work to be done. Less than 25 percent of the companies evaluated by the firm have genuinely "identified, incorporated and disclosed" material ESG issues within their overall strategies. But the asset manager isn’t only wagging its finger and scolding — Taraporevala says it's willing to work with clients on these challenges. To that end, it launched what it calls the R-Factor tool, a risk scoring system that measures how companies are performing based on financially material as well as industry-specific ESG issues. The tool generates ESG scores for more than 6,000 listed companies globally, which State Street Global Advisors uses to help clients understand their portfolio risk exposure. Beginning this year, the asset manager will also use its proxy voting power to take action against companies with low ESG scores. “Ultimately, we have a fiduciary responsibility to our clients to maximize the probability of attractive long-term returns — and will never hesitate to use our voice and vote to deliver better performance for them,” Taraporevala asserted. “This is why we are so focused on financially material ESG issues.” Sincerely, Leon Kaye Managing Editor, TriplePundit News Editor, 3BL Forum Follow us on Twitter @TriplePundit