A new report suggests that the Washington State Investment Board (WSIB) — the public body that manages more than $181 billion in pension funds and other public assets — frequently voted against climate change resolutions introduced by activist shareholders in 2022. Commissioned by the climate advocacy group 350 Washington Network, the report scrutinizes the board’s “positive action strategy,” in which the WSIB pledges to use its ownership of companies to advance environmental, social and governance goals.
In recent years, climate change activists have turned toward Wall Street and big financiers to try to prevent the development of new fossil fuel infrastructure and hasten the transition to clean energy. Alec Connon, the Seattle-based co-director of Stop the Money Pipeline and author of the report, said that targeting big banks and other institutions is a key part of this strategy.
“The world’s four largest funders of fossil fuel expansion are Citi, Chase, Bank of America and Wells Fargo,” he said. “Public pensions across the U.S. are some of the largest investors in the four banks.”
In collaboration with Indigenous advocacy organizations such as Mazaska Talks, Connon said that Stop the Money Pipeline supported shareholder resolutions that required banks to limit lending to fossil fuel companies and stipulate free, prior and informed consent of Indigenous nations for infrastructure that runs through their lands. Afterward, the coalition evaluated WSIB’s position on those votes.
“So we did an analysis using publicly available information. We took a look at how the state of Washington’s retirement system was voting on those resolutions, and [we were] pretty upset with what we found,” Connon said. “They opposed all of those resolutions that I just named.”
Climate-minded shareholders have ramped up the use of non-binding resolutions at shareholder meetings of large, publicly traded corporations, a process that is regulated by the Securities and Exchange Commission. Connon said that, even if these resolutions don’t pass, pressure from stockholders can begin to shift decision making at institutions such as big banks, insurance firms and utility companies.
“They’re not legally binding,” he said, “but if investors are not happy with the direction of a company, they sell their shares, they remove their money from the company and that’s bad for the company. That’s how the company raises money … so if even 30, 40 — certainly 50, 60 percent — of investors are calling for a company to do something, it’s very unusual for a company to ignore that.”
Helping lead the charge of this burgeoning front of the climate movement have been ethically minded institutional investors such as public pension funds and university endowments. Because they are accountable to their beneficiaries, these institutions are more likely to engage in shareholder activism that seeks to incorporate climate risk into corporate business practices.
For example, the New York City Comptroller’s office — which is responsible for overseeing public employee retirement funds — announced in January that it would sponsor resolutions at major banks requiring them to disclose absolute rather than relative greenhouse gas emissions targets for 2030, thus banning an accounting trick that could allow them to finance more fossil fuel projects while appearing climate friendly.
Among the votes that Connon tracked, WSIB opposed most climate resolutions, including those to align the business models of Chase, Citi, Bank of America, Morgan Stanley and Goldman Sachs with limiting global warming to 1.5 degrees Celsius. It took a similar position on resolutions to restrict underwriting of new fossil fuels in line with a 1.5-degree pathway at the insurance companies Chubb, Travelers and The Hartford; it also voted against requiring the utility company Dominion Energy to produce a report into how it plans to limit emissions in accordance with the 1.5-degree goal.
The report also claims that WSIB consistently voted in favor of company directors who oversaw the expansion of fossil fuel projects and against resolutions that affirmed Indigenous rights.
In an email to Real Change, WSIB Institutional Relations Director James Aber wrote that WSIB has supported many shareholder proposals, including about half of the climate change resolutions introduced at big corporations. In explaining why the WSIB voted against some of these measures, Aber explained that they were at times redundant or too ambitious.
“We typically will not support a resolution if a company has already substantially implemented the proposed ask,” Aber wrote. “We also tend to vote against resolutions that are either overly prescriptive or unachievable.”
Aber also noted that, in its Dec. 15, 2022, meeting, the WSIB adopted a more assertive approach to shareholder votes that would allow the body to vote against a corporate board’s wishes.
“For companies systemically critical to the climate transition, we may vote against relevant members of the board due to failure to implement a strong governance framework related to climate change risk,” reads the newly adopted language.
Connon is not convinced, saying that many of the climate resolutions WSIB did vote for were more incremental in nature.
“In general, they voted for the weakest resolutions on the table, and anything that was a little bit stronger, anything that — I would argue — is aligned with what needs to happen and what is appropriate for the severity of the climate crisis, you know, they voted against,” Connon said.
Another aspect of WSIB’s investment practices that has come under increasing scrutiny is the board’s large stake in private equity. Unlike publicly traded companies, private equity firms do not have many of the same reporting requirements. This has led to private equity becoming an increasingly favored vehicle for fossil fuel ownership and other businesses with more dubious ethics.
One firm in particular that WSIB has a close relationship with is KKR. WSIB was a founding investor of the private equity firm and has invested billions into the company’s funds over the past decades, a decision which has elicited criticism from labor unions and environmentalists. The Private Equity Stakeholder Project, an organization that investigates abuses by private equity groups, has labeled KKR as among the “dirty dozen” worst firms for the planet.
In 2019, KKR acquired a 65 percent stake in the Coastal GasLink pipeline, a project that has garnered fierce opposition from hereditary chiefs of the Wet’suwet’en First Nation and other Indigenous and environmentalist groups.
As of December 2022, the WSIB owned $42.1 billion in private equity assets, making up 28.2 percent of the board’s retirement funds. This is in contrast to some other public pension funds, which have begun to move away from private equity. Among the big North American pension funds, WSIB has a reputation of being one of the biggest investors in private equity.
Aber explained that the reason why WSIB relies so heavily on private equity was because it yields a higher return over publicly traded stocks. “[T]he objective of the private equity program is to generate a significant premium above the returns of the public equity markets over the long term,” Aber wrote.
This spring, major North American banks will face another round of climate activist shareholder resolutions. Connon hopes the WSIB will switch sides and vote in favor of them. It remains to be seen if the board’s new policy on allowing greater latitude to defy corporate directors’ wishes will result in this change.
“I think that it is incredibly disappointing that the state pension fund isn’t even doing the basics when it comes to climate change,” Connon said. “It’s incredibly disappointing that it’s opposing common-sense climate resolutions and actively slowing down the transition rather than getting behind it. … I don’t think that’s how the public employees and the retirees would want their money spent.”
Guy Oron is the staff reporter for Real Change. Find them on Twitter, @GuyOron.
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