State Street has announced that it is planning to vote against the boards of large companies if there are concerns with the environmental, social, and governance (ESG) standards. In 2019, the company introduced its R-Factor (responsibility factor) scoring system which scores how well companies perform against several “financially material and sector-specifics” ESG metrics. The metrics are based on the Sustainability Accounting Standards Board (SASB) materiality framework and four data providers. For 2020, SSGA will “take appropriate voting action” against directors in multiple markets, including the US, UK, Australia, Japan, Germany, and France. The initial voting strategy for 2020 will focus on the lowest performers if they cannot provide plans to improve, but it anticipates widening the scope of negative votes at all underperforming companies by 2022. State Street is making R-Factor scores available to company management.
- Set goals and manage against them;
- Align management incentives appropriately;
- Develop board fluency in communicating how sustainability is incorporated into long-term strategy.