State Street tells companies ESG moves no longer optional

State Street Corp. said three out of four companies haven’t made meaningful progress on environmental, social and governance issues. The asset manager is putting them on notice.

State Street Global Advisors is prepared to take voting action against board members at companies in the major stock market indexes that have been “consistently underperforming” peers in the asset manager’s ESG performance scoring system, according to a letter released Tuesday by Cyrus Taraporevala, chief executive of the unit that oversees $2.5 trillion in assets.

“We see that shareholder value is increasingly being driven by issues such as climate change, labor practices, and consumer product safety,” Mr. Taraporevala wrote. “Ultimately, we have a fiduciary responsibility to our clients to maximize the probability of attractive long-term returns.”

Mr. Taraporevala’s announcement echoes plans by rival BlackRock Inc. CEO Larry Fink to put sustainability at the center of his company's strategy. The $7 trillion asset manager also joined a Climate Action 100+ coalition to pressure big carbon emitters.

Boston-based State Street said it will vote against ESG laggards in the S&P 500, FTSE 350, ASX 100, TOPIX 100, DAC 30 and CAC 40 indexes. It plans to expand the campaign to focus on companies that have lagged for multiple years in 2022.

“State Street’s announcement marks a pivotal moment for boards that are failing to manage ESG issues and the material risks they pose to shareholders,” Eli Kasargod-Staub, executive director of nonprofit shareholder advocacy group Majority Action, said in a statement. BlackRock, State Street and Vanguard represent about 25% of shares voted at S&P 500 companies, he said.

[More: BlackRock, Vanguard accused of opposing shareholder efforts on climate]