Engagement spotlight

Monitoring changes to shareholder proposals—a key investor tool

The ability to file a shareholder proposal, which are resolutions submitted by investors for a vote at a company’s annual general meeting, is a fundamental shareholder right, ensuring investors have a say in the companies they own. In November 2025, the Securities and Exchange Commission announced it would pause the review of no-action requests, which are submitted by companies seeking to exclude a shareholder proposal from a vote at the AGM.

While there may be valid legal reasons why a company can exclude a shareholder proposal from a vote, the SEC has historically played an important role as a neutral referee in making judgements on no-action requests. The SEC decides whether a shareholder proposal can be excluded, and both companies and proponents of those proposals have respected the SEC’s determinations. Often, before the SEC gets involved, companies and proponents can reach a resolution. Examples of such resolutions include the company agreeing to put a proposal on the ballot, or the proponent withdrawing the proposal after the company takes action to address the issues raised.

The SEC’s announcement represents a concerning shift in the no-action request process. The change paves the way for companies to exclude shareholder proposals more easily and leaves proponents with little recourse. In early 2026, several proponents already have sued major companies, including AT&T, PepsiCo, Chubb and UnitedHealth Group, over attempts to exclude proposals from their respective ballots. Litigation, which is normally reserved as a last resort, is becoming the only option for investors. While large institutional investors may have the resources to file lawsuits, many smaller investors and individuals do not.

CalSTRS is closely monitoring how the shift in SEC policy will play out this proxy season. CalSTRS is watching for potential abuse of the new policy, assessing each shareholder proposal exclusion, engaging with companies and potentially adjusting proxy voting decisions. Shareholder rights are fundamental to well-functioning financial markets, and CalSTRS will continue to engage with companies and policymakers to ensure they are protected.

Stewardship priorities update

Net zero transition -  Southern Company and the status of nuclear power

Bloomberg New Energy Finance forecasts U.S. data center power demand to reach more than 100 gigawatts by 2035, highlighting the challenges and opportunities of producing sufficient electricity to fuel this rapid growth. One of the solutions being explored by the utility and technology sectors is the expansion of nuclear energy.

CalSTRS staff recently attended a meeting with Southern Company—one of the largest energy companies in the United States—to continue a dialogue that has been taking place over the past six years. CalSTRS leads engagement with Southern Company through Climate Action 100+, a global investor initiative to address climate-related financial risk at the world's largest greenhouse gas emitters. The meeting focused on the implications of expanded development of nuclear power, including both large conventional nuclear power plants and small modular reactors. SMRs are smaller nuclear reactors that can be deployed more quickly and at a lower cost than traditional plants.

Southern Nuclear, a subsidiary of Southern Company, operates three major nuclear power plants in the Southeast, comprising six active reactors in Georgia and Alabama. These include Plant Vogtle and Plant Hatch in Georgia and Plant Farley in Alabama.

Plant Vogtle Units 3 and 4 are the first newly constructed nuclear units to enter commercial operation in the U.S. in more than 30 years. With the completion of these units in 2023 and 2024, Vogtle is the largest nuclear power plant and generator of clean energy in the country.

Small modular reactors are advanced nuclear reactors with 300 megawatts of electrical output—approximately one-third the amount of a conventional nuclear reactor. They are categorized by their cooling technology and fuel type, such as light-water reactors, molten-salt reactors, high-temperature gas-cooled reactors and liquid-metal fast reactors. These designs are assembled in a factory, shipped to the site and incorporate improved safety features.

While SMR technology is being used internationally, commercial SMR technology in the United States is still in the development stage. One project, the Natrium reactor, developed by TerraPower in partnership with GE Hitachi Nuclear Energy, received a construction permit from the U.S. Nuclear Regulatory Commission in March 2026. The first natrium plant in Kemmerer, Wyoming, represents a major shift in nuclear design by combining a sodium-cooled fast reactor with a molten-salt energy storage system. This is the first commercial construction permit for a reactor using a design other than the conventional light-water technology in the U.S. in more than 40 years.

One of the barriers to providing clean, reliable and affordable nuclear power to businesses and communities across country is establishing a reliable supply chain that can produce consistent, positive financial results. To be successful, this effort will require significant regulatory support and capital investment over the next decade. Engaging a large utility like Southern Company is key to identifying risks and opportunities for CalSTRS future investments in this sector.

Engagement spotlight

Explaining the value of proxy advisors

Proxy advisor firms provide independent third-party research on company annual meeting ballots and technological platforms that streamline the voting process. Recently, proxy advisors have come under scrutiny by state and federal regulators and lawmakers and have been targeted by legislation, regulation, legal action and executive orders. Critics claim proxy advisors wield undue influence in voting outcomes at company meetings, give politically motivated vote recommendations and facilitate collusive behavior.

In CalSTRS’ view, proxy advisors have an important role in the proxy ecosystem and treat proxy votes as plan assets and votes all shares in alignment with the CalSTRS Corporate Governance Principles. In the 2024-25 fiscal year, CalSTRS voted on 101,972 items at 10,875 portfolio company meetings. Proxy advisor research acts as an important supplement to CalSTRS staff expert analysis. Staff use this research, in addition to information from the company and other industry sources, to make informed voting decisions. The technological platforms offered by proxy advisors allow investors to efficiently vote proxies. This operational efficiency is crucial as staff sometimes vote for more than 100 company proxies in a single day. Proxy advisors enable investors to build highly customized voting policies tailored to each investor’s corporate governance beliefs and principles.

CalSTRS is engaging lawmakers and regulators to improve the understanding of the proxy voting process and the value of proxy advisor services. This includes direct meetings with lawmakers and their staff, responses to regulatory solicitations and collaboration with other investors when interests are aligned. For example, CalSTRS  joined an amicus brief in early 2025, successfully supporting proxy advisors in litigation. CalSTRS is committed to using its influence to protect shareholder rights, including proxy voting, for the long-term interests of the fund.

Stewardship priorities update

Corporate and market accountability

SASB Standards update

CalSTRS submitted an investor response to the IFRS Foundation’s International Sustainability Standards Board consultation survey on amendments to the Sustainable Accounting Standards Board Standards. The SASB Standards are industry-specific sustainability disclosure standards intended to guide companies on sustainability topics and metrics most likely to be financially material to investors. There have been minimal updates to the standards, which were published in 2018 and cover 77 industries.

CalSTRS’ response covered proposed updates for all industries falling under the extractives and minerals processing sector and the processed foods industry, including new or updated metrics spanning climate, nature and biodiversity and human capital. CalSTRS also shared input on targeted metrics across 41 additional industries, including water management and workforce health and safety. 

This will improve the usefulness and comparability of industry-specific metrics on sustainability related risks and opportunities, enabling investors to make more informed decisions.

Building industry influence

During the past quarter, CalSTRS staff attended multiple events aimed at building working relationships with senior company executives and fellow investors. Attendance at these events allows direct access to decisionmakers who can shape corporate behavior. Major events that took place during the quarter include:

• Barclays 11th Annual Eat, Sleep, Play, Shop Conference: Staff met with management teams from 12 companies across the food service, hospitality and gaming industries. Topics discussed included responsible AI deployment and governance, and building sustainable and resilient workforces.
• Baird Industrials Conference: Staff met with 17 companies across the industrials, aerospace, transportation and materials industries. Key issues were employee retention and technology impact on the workforce, and decarbonization consistent with CalSTRS’ ambition of a net zero portfolio by 2050 or sooner.

CalSTRS uses industry events to gain access to company executives and build expertise across a diverse array of industries and to influence corporate behavior in alignment with CalSTRS Stewardship Priorities.

Net zero transition

Phillips 66 refinery closure

The decision to close its Los Angeles refinery represents a strategic pivot addressing both economic realities and environmental commitments of the company. Phillips 66 is a multinational energy company that CalSTRS leads engagement with through Climate Action 100+, an investor-led initiative focused on engaging companies to manage climate-related financial risk.  

The business case

The decision to close the 139,000-barrel-per-day facility was driven by market shifts that challenged its long-term viability. West Coast refining profit margins deteriorated significantly throughout 2024, reaching a five-year low and signaling structural challenges rather than temporary market fluctuations. California's evolving fuel landscape created additional headwinds. While gasoline demand remains strong and California ranks second nationally in consumption, the state's strong renewable diesel adoption has weakened petroleum diesel markets. This creates an operational challenge for refiners who must produce multiple fuel types from each barrel of crude oil, yet some products face shrinking demand and smaller margins. Phillips 66 recognized that maintaining operations under these conditions would undermine shareholder value.

Environmental and community benefits

The closure delivers tangible environmental improvements for surrounding communities. Residents of nearby Wilmington and Carson will experience improved air quality as emissions from refining operations cease. The company committed approximately $70 million for groundwater remediation, demonstrating accountability for historical impacts.

The 650-acre site redevelopment will transform the industrial infrastructure into mixed-use space featuring retail, recreational facilities and modern industrial operations. Plans include 27 acres of sports fields and green space—a dramatic shift from storage tanks and processing units.

Operational transition and supply continuity

Phillips 66 executed a methodical shutdown through late 2025, with final crude oil processing in mid-October. The company addressed California's fuel supply concerns by committing to source gasoline from within and outside its refining network, supplemented by renewable diesel and sustainable aviation fuel from its Rodeo Renewable Energy Complex.

This approach demonstrates that sustainability goals need not compromise energy security. By pivoting from in-state refining to strategic sourcing, Phillips 66 maintains market presence while reducing its carbon footprint.

Strategic alignment

For CalSTRS, this closure exemplifies how sustained engagement can influence corporate behavior toward sustainable practices. The decision reflects management's recognition that long-term value creation requires adapting to regulatory environments, market dynamics and stakeholder expectations around climate risk. By exiting an economically challenged operation, remediating environmental impacts and repurposing valuable real estate, Phillips 66 advances both shareholder interests and community well-being—the outcome CalSTRS' Climate Action 100+ engagement seeks to achieve.

Engagement spotlight

Recap of the 2025 proxy voting season 

Once a year, investors can exercise their proxy voting rights at companies’ annual general meetings, or AGMs. CalSTRS executes more than 100,000 votes at about 10,000 company AGMs every year.

In those meetings, voters consider shareholder proposals; formal recommendations to a company’s board of directors requesting a new course of action. For example, a proposal may ask for an annual report detailing efforts to reduce greenhouse gas emissions as a means of managing and mitigating climate-related risks.

CalSTRS voted on 1,212 shareholder proposals in the 2025 proxy season, voting in favor of 484 and against 728. Topics included greenhouse gas disclosures, workforce management, employee wellness and board governance. Staff review company reports and independent research to determine how to vote in the best interests of CalSTRS’ members.

A vote against a proposal does not signify CalSTRS finds the topic insignificant. Each shareholder proposal is carefully considered based on its details and the processes and needs of the company.

CalSTRS will continue to influence the world’s largest companies to create business practices that minimize risk and create value, helping to ensure California’s public educators continue to have a secure retirement.

Learn more about proxy voting and CalSTRS voting history.

Stewardship priorities update

Corporate and market accountability 

Lyft eliminates dual-class shares

In August, rideshare company Lyft announced it would be converting from a dual-class share structure to a one share, one vote voting structure. Dual-class share structures include shares with greater voting power than others, not in proportion to economic interests. These structures provide outsized voting power to certain investors, typically founders and company insiders, that can skew voting outcomes.

Lyft’s dual-class share structure had been in place since the company’s initial public offering in 2019. CalSTRS, an investor in Lyft when the company was still private, engaged the company leading up to the IPO to adopt a one share, one vote structure. CalSTRS supports these structures because they create direct proportionality between an investor’s economic interest and voting power at a company. If a company adopts a dual-class share structure at its IPO, CalSTRS encourages those companies to transition to one share, one vote within seven years. Academic research finds while dual-class companies have a value premium after going public, the benefit fades to a discount after seven years.

Net zero transition 

Building industry influence

During the past quarter, staff attended multiple events aimed at building working relationships with senior company executives and fellow investors. Attendance at these events allows CalSTRS staff direct access to decision-makers who can shape corporate behavior. These relationships are foundational to CalSTRS’ ability to use its influence to accelerate the transition to a net zero portfolio. This work is important as progress toward our net zero goals will not happen unless the global financial markets also demonstrate meaningful progress toward net zero. Major events that took place during the quarter include:

• Climate Week New York City: A preeminent week-long event focused on advancing action to address climate change.
• Canadian Imperial Bank of Commerce (CIBC) Capital Markets Annual Stampede Energy Forum: An event connecting investors with leading Canadian energy companies.
• Barclays Energy and Power Conference: A convening of energy company executives and investors.
• Enercom Denver: The largest independent investor conference for the oil and gas industry, connecting energy companies with investors.
• Permian Energy Dialogues: An event connecting investors with representatives from energy companies that operate in the Permian Basin, a geographic region in the southwestern United States primarily known for its oil and gas production.

Engaging the EPA on crucial policy

In September, CalSTRS sent a letter to the Environmental Protection Agency regarding the regulator’s proposal to roll back its endangerment finding. This 2009 finding shows greenhouse gas emissions threaten public health and welfare. This provides the legal basis for many EPA climate regulations intended to curb emissions and combat climate change. In the letter, CalSTRS stressed the economic and reputational risk created for portfolio companies should the endangerment finding be rolled back and companies fail to maintain responsible operating practices. The potential roll back could also contribute to an unpredictable regulatory environment, limiting companies’ ability to make effective long-term strategic decisions. While the proposal is expected to be met with significant pushback and legal challenges, CalSTRS will continue to explore ways to constructively engage the EPA.

Read CalSTRS' full letter to the EPA.

Engagement spotlight

Enhancing multi-class share disclosures

In May, the U.S. House of Representatives Financial Services Committee unanimously voted to advance congressional bill H.R.3357, the Enhancing Multi-Class Share Disclosures Act. The bill focuses on public companies that use multi-class share structures, where some investors’ shares have greater voting power than others, creating a misalignment between an investor’s economic interest in a company and their voting power. If passed, the Securities and Exchange Commission will create new rules requiring companies to clearly disclose information about their multi-class structure. This creates transparency around who controls decision-making at companies and how investors with outsized voting power may skew outcomes.

CalSTRS is an ardent supporter of one share, one vote structures, which ensure an investor’s voting power is directly proportional to their economic interest in the company. We have worked for many years to bring an end to multi-class share structures, including collaboration with the Council of Institutional Investors. In instances where multi-class shares exist, we advocate they have a reasonable sunset period. H.R. 3357 represents a positive step toward limiting the practice of multi-class shares, provides needed transparency and bolsters shareholder democracy.

Stewardship priorities update

Corporate and market accountability

Defending the watchdog that ensures high quality financial audits

In June, CalSTRS wrote a letter to the U.S. Senate Committee on Banking, Housing, and Urban Affairs about a proposal to eliminate the Public Company Accounting Oversight Board. The PCAOB is a nonprofit corporation that oversees the financial audits of U.S.-listed public companies to ensure high-quality and accurate audits. Investors rely on financial disclosures from companies when making investment decisions. It was created by the Sarbanes-Oxley Act, a 2002 federal law passed in response to several major accounting scandals, including Enron and WorldCom. Scandals like these hurt investors, employees and customers, while harming the integrity of financial markets by reducing public trust.

We are concerned eliminating the Public Company Accounting Oversight Board and moving its duties to the Security and Exchange Commission—which already has many responsibilities and limited resources—will lead to lower audit quality. Our letter focused on the need for the PCAOB to continue operating as an independent, nonprofit corporation that specializes in audit quality.

Around the same time CalSTRS sent its letter, the U.S. Senate Parliamentarian ruled combining the SEC and PCAOB cannot happen under the draft legislation it was introduced in, due to Senate rules. While this development seems to protect the PCAOB for now, CalSTRS will continue to monitor possible legislative attempts to weaken audit integrity.

Net zero transition

Supporting the European Union’s methane regulation

On June 13, CalSTRS sent a comment letter to the European Commission supporting the European Union Methane Regulation. The regulation aims to standardize methane emission disclosures and establish maximum limits for methane intensity of imported natural gas. This would help promote improved methane emission reduction practices.

Methane’s warming potential is 80 times more potent than carbon dioxide, though it does not last as long in the atmosphere. Reducing methane emissions remains a priority for CalSTRS because most current methane emissions can be eliminated with existing technology and at little to no cost to companies. In our letter, we focused on how the regulation will help reduce investment risk, improve our ability to research investments and support long-term value creation. We continue to look for opportunities to work with companies and regulators on improving methane emissions practices.

Workforce and communities

Examining coal plant retirement delays amid surging energy demand

CalSTRS is engaging major U.S. electric utilities and regulators about the extended timeline for retiring coal-fired power plants because of unprecedented energy demand. Through discussions with industry leaders, including Duke Energy, CMS Energy, DTE Energy, Dominion Energy, Southern Company and Entergy, CalSTRS is gaining insights on how much energy demand has increased and the implications of delayed coal retirements on both the energy transition and investment portfolios. These conversations are happening as utilities struggle with balancing environmental commitments against the reality of soaring electricity demand driven largely by the rapid expansion of data centers and artificial intelligence infrastructure.

Utility executives say postponing coal plant retirements temporarily ensures grid reliability while they build cleaner alternatives. We have pressed these utilities on how they are addressing the concerns of employees, stakeholders and communities affected by the retirement delays to understand the implications for a just transition.

The energy shortage is being driven significantly by data center operators and hyperscale cloud providers. While they prefer clean energy, operators acknowledge the current limitations of renewable power in providing the consistent 24/7 electricity supply their operations require. These facilities need suitable land, adequate water for cooling, reliable power and robust network connectivity. Companies that supply the resources necessary to build new AI infrastructure, including graphics processing units, cement, steel, cable and air conditioning, say they are seeing significant increases in their orders. As these requirements become more difficult to secure together, utilities are extending the operational life of coal plants.

Engaging at the intersection of AI and human capital management

CalSTRS staff attended the Baird 2025 Global Consumer, Technology & Services Conference and met with 18 public companies in the retail, restaurant, financial and health care sectors. Our meetings focused on human capital management, artificial intelligence adoption and governance and the financial impact of tariffs and other policy shifts.

Investors need strong human capital disclosure to assess a company’s long-term workforce stability. Through engagement directly with C-suite executives, we advocated for transparency across four critical human capital metrics: employee demographics, turnover rates, diversity and inclusion indicators and workforce composition data. Given the accelerating pace of AI adoption across our portfolio, we have also prioritized understanding workforce transformation impacts within labor-intensive sectors.

Moving forward, we will leverage these relationships to drive continued improvement and expand our outreach to additional industries with significant workforce exposure. This sector-by-sector approach will allow us to benchmark responses among company peers, validate management representations, and influence workforce disclosures and positive outcomes.

Engagement spotlight

Engaging with proxy advisors on the value of diversity to investors

Earlier this year, Institutional Shareholder Services and Glass Lewis announced a review of their voting policy recommendations in relation to diversity, equity and inclusion considerations. These proxy advisory firms provide research, voting recommendations and voting technology platforms. Institutional investors rely on these services to efficiently vote their proxies and implement custom voting principles. CalSTRS uses both firms for proxy research and Glass Lewis for its voting technology platform, which enables us to adeptly vote proxies at about 10,000 global companies per year. Voting proxies gives us direct say in how companies we invest in are governed for the benefit of California’s educators.

In February, Institutional Shareholder Services (ISS) announced it would indefinitely halt consideration of the gender and racial/ethnic diversity of a company’s board when making vote recommendations for U.S. company board directors. In the past, ISS recommended voting against board members responsible for a board lacking diversity. There was no warning or opportunity for ISS clients to weigh in on this decision. Shortly after, Glass Lewis announced it was similarly evaluating their voting recommendations. CalSTRS met with Glass Lewis executives to express strong support for existing practices, because diverse boards are better suited to manage risk and improve financial performance. In March, Glass Lewis shared they would not change their current practices.

At CalSTRS, our Corporate Governance Principles and our three-year Stewardship Priorities guide our shareholder engagement and proxy voting activities. These principles and priorities improve the long-term performance of the CalSTRS Investment Portfolio and intentionally transcend short-term trends. We pursue diverse and effective corporate boards and encourage companies to recruit and retain the most engaged and qualified workforce possible. Having a variety of perspectives leads to high performing and resilient workforces, which results in improved financial performance at our portfolio companies.

More information on our proxy voting.

Stewardship priorities update

Corporate and market accountability

Protecting the independence of proxy advisors

In January, CalSTRS joined an amicus brief authored by the Council of Institutional Investors, and supported by four other institutional investors. The amicus brief is related to a court case stemming from a 2020 Securities and Exchange Commission rule that classified proxy advice from proxy advisors as solicitations. Doing so would require proxy advisors to follow additional regulatory steps that would have compromised their ability to provide timely and independent voting advice to clients such as CalSTRS. The amicus brief supports the perspective that proxy advice is not a solicitation, and this rule has a chilling effect on the use of proxy advisors providing independent third-party advice to investors. We will continue to monitor developments in the court case and look for opportunities to constructively engage where appropriate.

Net zero transition

Shaping climate regulation in California

In March, CalSTRS responded to a solicitation from the California Air Resources Board to develop regulations to implement Senate Bills 253 and 261, which passed into law in 2023. SB 253 requires companies with more than $1 billion in annual revenue that do business in California to report their scope 1, 2 and 3 greenhouse gas emissions. SB 261 would require companies with more than $500 million in revenue that do business in California to biannually produce a Task Force on Climate-Related Financial Disclosures (TCFD) aligned report. We expressed a strong desire for the California Air Resources Board to pursue regulations aligned with existing international disclosure frameworks, specifically the standards established by the International Sustainability Standards Board (ISSB). Alignment with existing frameworks will reduce unnecessary reporting burdens and costs to companies, while ensuring investors receive climate-related data necessary to manage risk and make informed investment decisions.

Building influence in the energy industry

CalSTRS staff recently attended multiple industry events intended to maximize the effectiveness of corporate engagement efforts, build influence and increase our team’s knowledge and expertise of the energy sector.

• Thrive Energy Conference: Staff met with executives from 21 oil and gas portfolio companies. The companies universally reaffirmed previous commitments related to managing climate risks. Many companies stressed consistent strategies are necessary due to the global nature of shareholders and differing regulatory regimes across global markets.
• CERAWeek Energy Conference: Staff participated on a panel about methane emissions from oil and gas operations hosted by the Environmental Defense Fund. We showed continued support to one of our partners in the effort toward decarbonization and continued communicating to the market the value we place on cost-effective methane emissions reductions from oil and gas portfolio companies.
• Piper Sandler Energy Conference: Staff met with executives from more than 30 portfolio companies across the oil and gas and renewable energy sectors. The group discussed emissions, workforce diversity and turnover, artificial intelligence, water and tariffs.

Tangibly reducing flaring

We recently subscribed to an oil and gas analytics platform that provides data about the operational performance of oil and gas wells in the contiguous United States. Data can be filtered by company, basin, county, and individual wells, and includes a metric called flaring. This practice burns off excess natural gas due to issues ranging from safety to infrastructure constraints to economics, and results in the release of greenhouse gases and other pollutants. The data is updated monthly, which gives us timely information to identify regions with poor flaring practices so we can focus our engagement efforts for optimal effect.

In reviewing the data, we observed three portfolio companies accounted for approximately one-third of all flaring in the Permian Basin in Texas, in 2023. Throughout 2024, we engaged executives at these companies multiple times regarding their flaring practices. We focused on why the flaring was happening and what could be done to reduce it. We communicated how important it is to minimize flaring and received commitments that progress would be made. Data for 2024 shows these companies have reduced flaring by nearly 30%.

Workforce and communities

Protecting worker safety to boost long-term company performance

In January, CalSTRS submitted a comment letter to the Occupational Safety and Health Administration outlining our support for proposed rules to protect workers from health risks associated with extreme heat. OSHA is a regulatory agency that falls under the U.S. Department of Labor and is tasked with setting and enforcing standards to ensure safe and healthy working conditions. Currently, regulation for working conditions in extreme heat is managed through a patchwork of state-level policies. Many companies’ operations expand beyond state lines, creating regulatory and legal risks for companies which must comply with different rules in different jurisdictions. Rules implemented at the federal level by OSHA will create consistency and certainty for compliance. Extreme heat negatively impacts a company’s workforce and can lead to an increase of work-related injuries, which drives down productivity. It’s in the best interest of workers, companies and investors to establish federal minimum standards as put forth by OSHA’s proposed rule.

Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

Engagement spotlight

Engaging on biodiversity through Nature Action 100

CalSTRS joined Nature Action 100 in September and recently engaged with four food and beverage companies—Archer Daniels Midland, Inner Mongolia Yili Industrial Group, Hormel Foods and Tyson Foods. Nature Action 100 is a global investor-led engagement initiative which aims to support greater corporate disclosure and action to reverse biodiversity loss and mitigate financial risk. CalSTRS is working toward a better understanding of how biodiversity loss and a dependency on natural capital pose material risks to companies in the CalSTRS investment portfolio. Biodiversity is viewed as critical to achieving a net zero emissions economy, a stewardship priority for CalSTRS.

Joining Nature Action 100, which currently has more than 230 investor participants representing more than $30 trillion in assets, provides an opportunity to address the systemic risks of biodiversity loss and help portfolio companies remain profitable. Specifically, Nature Action 100 engages companies on six expectations:

• Ambition: Publicly commit to minimize contributions to key drivers of nature loss and to conserve and restore ecosystems at the operational level and throughout the value chain by 2030.
• Assessment: Assess and publicly disclose nature-related dependencies, impacts, risks and opportunities at the operational level and throughout the value chain.
• Targets: Set time-bound, context-specific, science-based targets informed by risk assessments on nature-related dependencies, impacts, risks and opportunities. Disclose annual progress against targets.
• Implementation: Develop a company-wide plan on how to achieve targets. The design and implementation of the plan should be developed in collaboration with Indigenous Peoples and local communities when they are affected. Disclose annual progress against the plan.
• Governance: Establish board oversight and disclose management’s role in assessing and managing nature-related dependencies, impacts, risks and opportunities. 
• Engagement: Engage with external parties including actors throughout the value chain, trade associations, policymakers, and other stakeholders to create an enabling environment for implementing the plan and achieving targets.

Nature Action 100 has developed a benchmark to track and report the progress of companies against these expectations. CalSTRS anticipates reporting more regularly on Nature Action 100 engagement over time.

Stewardship priorities update

Corporate and market accountability

Continued push for broad adoption of global sustainability disclosure standards

As of the end of 2024, CalSTRS staff responded to consultations issued by regulators in China, Korea, Japan, Chile, Switzerland, Hong Kong, Thailand and Mexico. These countries are considering integrating the International Sustainability Standards Board’s disclosure standards into their regulatory frameworks. CalSTRS responds to these consultations to advocate the adoption of general sustainability-related disclosures and climate-related disclosures. Widespread adoption of the ISSB standards is a focus for CalSTRS and falls under our Stewardship priority of Corporate and Market Accountability. Global standards allow for improved and more consistent disclosure, which in turn allows investors to be better informed about company risks and opportunities when making investment decisions. Through our responses to consultations to mandate these disclosures, we have engaged countries representing 26% of global gross domestic product and 38% of global emissions.

The significance of the International Sustainability Standards Board’s standards has increased due to continued difficulty to establish a climate risk disclosure standard in the U.S. Earlier this year, the Securities and Exchange Commission released its own set of mandatory climate-related financial risk disclosures for U.S. companies. However, the rule came under significant legal challenges and is unlikely to remain in place, as CalSTRS expects the SEC’s new leadership to withdraw support for the adoption of the climate-disclosure rule.

Net zero transition

Global climate and biodiversity discussions advance

In fall of 2024, two important reoccurring sustainability-related events took place: the Convention on Biological Diversity (COP16) and the United Nations Climate Change Conference (COP29). Both events convened leaders in government and business from around the world. The COP16 event was concerned with protecting and preserving the planet’s biodiversity while COP29 focused more broadly on coordinating global efforts to address climate change.

By the conclusion of COP16, 119 countries had submitted national targets aligned with the Global Biodiversity Framework to address the key drivers of biodiversity loss. However, far fewer countries have submitted national biodiversity strategies and action plans, which more specifically detail how they plan to achieve their GBF targets. In an unprecedented move, the United Nations will reconvene COP16 in late February to address biodiversity financial resources and the monitoring framework.

Leading up to COP29, CalSTRS signed on to a global investor statement urging governments of the world to adopt whole-of-government approaches to implement policies intended to limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels. At COP29, negotiations led to an increase in financial commitment from wealthy nations from $100 billion annually to $300 billion annually by 2035. These financial commitments assist developing nations with their transition toward clean energy and adaptation to climate change impacts. However, the figure still falls short of what many experts believe is the actual level of financial assistance required for these countries to transition smoothly.

The back-and-forth nature of negotiations at these events reveals the inherent challenges in coordinating a worldwide response to global issues. CalSTRS continues to monitor these outcomes and look for strategic opportunities to add our organization’s voice to the conversation.

Working alongside partners to address methane emissions

Nordea Asset Management recently received an award for leadership in climate action at the 2024 Principles for Responsible Investment in Person annual conference. CalSTRS recently allocated $450 million to Nordea’s Global Stars Public Equity Strategy. The multifaceted partnership with Nordea exemplifies CalSTRS' ability to work with external partners for both investment management services and stewardship expertise.

The award recognized Nordea’s leadership in a methane-focused collaborative engagement that included CalSTRS as a prominent participant. The engagement sought to influence oil and gas companies to join The Oil and Gas Methane Partnership 2.0  and adopt its framework for methane measurement, reporting and target-setting. Methane mitigation is a focus area of the CalSTRS stewardship priority Net Zero Transition. Lowering methane emissions is one of the most economically viable and immediate means to slow climate change. The International Energy Agency estimates 30% of methane emissions from fossil fuel operations can be abated with no net cost. The engagement is ongoing and has grown from 15 companies in 2022 to 65 in 2024. To date, 14 companies have joined the OGMP 2.0.

Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

Engagement spotlight

A look back at the 2024 proxy season

This year, CalSTRS focused on climate risk disclosure during the 2024 proxy season, voting against the boards of directors at a record 2,258 companies. This is up from the previous record of 2,035 companies in 2023. Many of these companies failed to provide minimum levels of climate risk disclosure or set greenhouse gas emissions reductions targets.

At CalSTRS, we expect all portfolio companies to accomplish the following, to help effectively manage the risks associated with climate change:

• Publish a report on sustainability-related disclosures that aligns with the International Financial Reporting Standards, which took over the monitoring of companies’ progress on climate-related disclosures from the Task Force on Climate-related Financial Disclosure (TCFD).
• Disclose Scope 1 and Scope 2 greenhouse gas emissions. Scope 1 emissions come from a company’s operations and Scope 2 emissions are from the generation of power a company uses.

In addition, we expect the highest emitting companies globally on the Climate Action 100+ focus list and other high-emitting companies to set appropriate targets to reduce greenhouse gas emissions, as this is an important step toward CalSTRS reaching a net zero emissions portfolio by 2050 or sooner.

Despite the inconsistent climate data disclosure, there was considerable improvement in methane emissions reporting from portfolio companies. Methane is 80 times more potent than carbon dioxide, and we continue to call on eligible companies to join the Oil and Gas Methane Partnership 2.0 (OGMP 2.0), a United Nations-led framework committed to the measurement, reporting and mitigation of methane emissions.

Focusing on methane emissions is one of the most economically viable and immediate means to slow climate change. The International Energy Agency estimates 30% of methane emissions from fossil fuel operations can be abated with no net cost.

As a result of CalSTRS-led engagements, 10 companies have joined the Oil and Gas Methane Partnership 2.0, including ExxonMobil, Chevron, Harbour Energy, OMV A.G. and Vital Energy.

Additionally, several companies we have engaged with in the exploration and production industry became members through mergers with companies which were already part of the Oil and Methane Partnership 2.0.

During the 2024 proxy season, we voted at more than 10,000 global company meetings, on more than 100,000 individual ballot items, and on more than 1,200 shareholder proposals covering topics such as human capital management (workforce management and employee wellness), board governance and climate-related risks.

We will continue working collaboratively with peers and use our proxy votes to influence the world’s largest companies to create sustainable business practices—which in turn will minimize risk and create value—and ensure California’s public educators continue to have a secure retirement.

See our Path to net zero, Corporate Governance Principles and proxy voting records for more information.

Stewardship priorities update

Corporate and market accountability

Outcomes from California funds engagement and expanded focus

California-based investors, including CalSTRS, California Public Employees’ Retirement System, Los Angeles County Employees Retirement Association and San Francisco Employees’ Retirement System, wrapped up another year of diversity-related engagement at the end of June 2024. The group has been building success since its inception in 2015 with an initial focus on increasing the board diversity of California companies.

In 2023, the same investors expanded their focus to companies in the Russell 3000 Index (a stock market index which covers the largest 3,000 U.S. companies).  The goal has been to increase diverse director representation and implement governance practices that ensure future board refreshment and expanded recruitment efforts. The California group engaged 52 companies, leading to the appointment of 19 directors of diverse backgrounds. Additional engagement successes include:

• 22 companies updated their definition of diversity to include gender and race/ethnicity in either their proxy or governance documents.
• 23 companies included a skills matrix in their proxy statements.
• 12 companies included individual director-level information on gender and race/ethnicity, often combined with the skills matrix.
• 11 companies adopted a diverse director recruitment policy that requires candidates from underrepresented groups be included in the initial search pool.

In the fiscal year 2024–25 engagement season, for the first time, the group will expand its focus internationally, engaging 41 global companies, 15 of which are non-US companies. These engagements will encourage companies to enhance their board diversity disclosures, address board diversity in board refreshment and recruitment practices, and increase diverse director representation.

Net zero transition

Engagement: a long-term and continuous lever of influence

Engagement is not usually a one-time interaction that yields an immediate outcome. Rather, engagement is an ongoing process of developing relationships and building consensus through understanding. One of our core strategies in reaching a net zero emissions investment portfolio by 2050 or sooner is to engage and influence companies through the global energy transition. During the quarter, staff held over 100 meetings with companies. Through these meetings, we ask companies to identify and disclose climate-related financial risks, set long, medium and short-term targets for greenhouse gas emissions reductions, and establish credible transition plans. We believe these actions will build resiliency and long-lasting value at the companies we invest in as the world moves toward a lower-carbon future.

Workforce and communities

Creating dialogue with corporate laggards and leaders on DEI

We believe companies that proactively publish meaningful workforce metrics – particularly around diversity, equity and inclusion (DEI) issues – can foster an inclusive workplace culture. Inclusive cultures attract and retain highly qualified talent, drive productivity and related financial benefits, and reduce reputational risk. This is demonstrated by a growing body of empirical evidence correlating diversity across several dimensions with financial outperformance.

We are now engaging companies that have recently announced intentions to unwind their previous publicly announced commitments related to diversity, equity and inclusion. Many of these reversals have come after companies were targeted through political pressure. The goal of our outreach is simple: to have an open dialogue to better understand why companies have made this decision and to reiterate our conviction that diversity has been shown to improve financial performance. Also, we seek to engage companies we believe are exhibiting best practices in diversity, equity and inclusion, to reaffirm our support for their efforts. Companies receive input from a wide set of stakeholders. It is important that CalSTRS, as a long-term investor, is part of the conversation and our voice is heard.

Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

Engagement spotlight

CalSTRS reaffirms work of Climate Action 100+

In May, we led the release of an investor statement highlighting the importance of Climate Action 100+ and the value of collaborative engagements as a risk mitigating tool. The statement was signed by 47 fellow institutional investors, who, with CalSTRS, collectively represent $4.6 trillion in assets under management. Climate Action 100+ focuses on engaging the world’s largest corporate greenhouse gas emitters to take necessary action on climate change to promote sustainable and resilient business practices. First launched in 2017, the coalition focuses on influencing companies to improve governance of climate risks, set emission reduction goals, establish low-carbon transition plans and enhance climate-related risk disclosure.

Climate Action 100+ has seen significant progress at focus companies:

• 77% of companies now commit to net zero by 2050 or sooner across emissions for direct operations.
• 93% of companies have board committee oversight of climate risks and opportunities.
• 90% of companies explicitly commit to aligning their disclosures with the Task Force on Climate-Related Financial Disclosure framework.

Virtually all companies—and thus investors—are affected by climate risk and the transition to a net zero emissions economy. Managing climate-related risk therefore requires action by a coalition of the world’s governments, businesses, investors and communities. Collective engagements such as Climate Action 100+ allow like-minded investors to more effectively allocate resources and amplify their influence to manage risk and protect the investments that provide security for our beneficiaries.

Stewardship priorities update

Corporate and market accountability

Engaging Weis Markets for better governance

Weis Markets is a U.S. mid-Atlantic food retailer with more than 200 store locations. We’ve engaged this company for several years due to its lack of board diversity and lack of gender, ethnically or racially diverse directors. The board also lacks a nominating committee (a body dedicated to identifying high-quality directors to serve on the board), a basic corporate governance best practice and is highly unresponsive to shareholders.

This year, in an escalation to our engagement efforts, we filed an exempt solicitation with the Securities and Exchange Commission. An exempt solicitation is a regulatory filing that allows us to communicate broadly with other shareholders, announcing our decision to vote against the board members of Weis Markets while providing our rationale. After our exempt solicitation, prominent proxy advisory firms Glass Lewis and ISS noted many of the same concerns we identified and recommended their clients, other investors, also vote against board members.

In the final vote, all directors were re-elected due to significant company insider ownership. However, support from non-insiders (shareholders not directly affiliated with the company) was low, with some board members receiving less than 40%. We think this result will send a strong message to the company about investor dissatisfaction and will bolster our engagement with the company to improve its board composition and governance practices.

Federal Trade Commission issues noncompete agreement rule

In April, the Federal Trade Commission announced a final rule that would ban the use of noncompete agreements nationwide. We wrote the commission expressing support for the creation of such a rule. Our letter outlined many concerns with the use of noncompete agreements as they can potentially stifle innovation and depress wages by limiting the ability of workers to freely move from one firm to another. Efficiently functioning labor markets lead to a thriving and competitive economy, which is beneficial to us and other long-term investors. Banning noncompete agreements also reduces reputational and legal risks for companies, as these types of agreements were already enforced in a highly inconsistent manner across different jurisdictions.

Net zero transition

Southern Company increases carbon-free nuclear power output

In 2019, when we began our Climate Action 100+ engagement with Southern Company, the goal was for the utility company to establish a plan to transition to net zero emissions by 2050. In April 2024, the company hit a key milestone on its journey when Vogtle Unit 4 at the Alvin W. Vogtle Electric Generating Plant began commercial operation. Vogtle Unit 4, along with Vogtle Unit 3, are part of an 11-year construction project that is now producing carbon-free electricity to more than 1 million homes and businesses in Georgia.

The massive Vogtle complex consists of four nuclear units. Vogtle Unit 3 entered commercial operation in summer 2023, Vogtle Unit 4 followed in April 2024, and Vogtle Units 1 and 2 were built in the 1980s. The newer nuclear plants are part of a broader plan to decarbonize Southern Company’s operations by reducing the number of coal-fired energy producing units. Since 2007, the company has retired more than 50 coal units with some sites transitioning to cleaner-burning natural gas. These efforts have reduced the company’s carbon emissions by 46%. Additionally, Vogtle Units 3 and 4 support a just transition with 800 permanent, high-paying positions.

Southern Company lists safety and emergency planning as the top priority at Vogtle. This includes protecting the health and safety of the company’s employees, the public and the environment. The Vogtle plant is designed with redundant safety systems and multiple layers of protection to ensure safe operation. Full-time, on-site inspectors monitor the plant to ensure it is maintained and operated in accordance with established nuclear operating procedures. In the unlikely event of an emergency, Vogtle has comprehensive plans intended to safeguard personnel, property and the public. These plans are tested and updated regularly.

Nuclear plants are key to carbon-free baseload (a minimum level of electricity needed to sustain a grid) electricity generation because they produce energy 24 hours a day, while other carbon-free energy sources such as wind and solar do not. Additionally, nuclear-generating assets are more resilient than coal or gas, requiring less downtime for maintenance. U.S. nuclear power reactors accounted for nearly 19% of domestic electricity production in 2023, making nuclear the second-largest source of U.S. electricity generation, after natural gas.

Our current and ongoing engagements to influence changes in public policies and corporate practices that support long-term value creation.

Engagement spotlight

Securities and Exchange Commission adopts landmark climate rule

In March, the Securities and Exchange Commission voted to adopt a new climate-related disclosure rule—a landmark breakthrough in climate-related disclosure in the United States. The rule is a crucial step toward more reliable, consistent and comparable information to assess the risk and opportunities to our portfolio companies, so we can help ensure a secure retirement for California’s public educators. Disclosure is essential for investors to make informed decisions about current and potential investments.

The final rule comes nearly two years after the SEC first published a proposed rule. The rule garnered unprecedented interest, with the SEC receiving a record setting 24,000 comment letters. We sent comment letters to encourage the drafting of a rule in general and to support the draft rule when it was published. In the final rule, the SEC referenced CalSTRS nearly 70 times. The rule includes requirements for companies to report greenhouse gas emissions directly from operations (scope 1) and those generated from energy purchased (scope 2). The rule also requires companies to acquire assurance (meaning third-party validation) of their emission disclosures. Assurance is important because it provides investors with a degree of confidence that the processes used by companies to measure and report their emissions are sound.

Some additional disclosures include:

• Climate-related risks that have or are reasonably likely to have a material impact on the company’s business strategy, results of operations or financial condition.
• The actual and potential material impacts of any identified climate-related risks on the company’s strategy, business model and outlook.
• Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the company’s climate-related risks.

We’ll closely monitor the implementation and progress of the rule. In an expected development, some business groups and state attorneys general have either committed to or have already launched legal challenges to the rule. We believe the SEC’s rulemaking process was thorough and thoughtful and that the rule is in line with the SEC’s mission of protecting investors and maintaining fair, orderly and efficient markets. We remain committed to supporting the rule and better corporate climate-related disclosures.

Stewardship priorities update

Net zero transition

Latest Climate Action 100+ progress and look ahead

Climate Action 100+, the investor-led initiative to encourage the world’s highest corporate greenhouse gas emitters to take necessary action on climate change, is showing engagement continues to make a difference. More than 700 investors are working with 170 focus companies to improve climate change governance, reduce emissions and strengthen climate-related financial disclosures to manage risk and create long-term shareholder value. We are long-standing members of the initiative and lead the engagement at 10 of the focus companies. Climate Action 100+ recently released its 2023 progress update.

The highlights are:

• 77% of focus companies have committed to net zero by 2050 or sooner across at least scope 1 and 2 emissions, up from 52% in 2021.
• 93% of Climate Action 100+ companies have board oversight of climate change risks and opportunities.
• 90% of focus companies have committed to aligning their disclosures with the Task Force on Climate-Related Financial Disclosures recommendations.
• 52% of electric utilities have developed a coal phase-out plan, including full retirement of coal-burning assets.

Climate Action 100+ recognizes there is more work to be accomplished to turn commitments into results. Investors will be working with companies during the second phase of the initiative (from 2023 through 2030) to improve short-term greenhouse gas reduction targets. Investors are also engaging companies to improve disclosures around energy transition activities that affect their workforce and local communities.

During the quarter, several prominent asset managers, including JP Morgan, State Street, Invesco and PIMCO, announced their plans to depart from Climate Action 100+. These managers issued statements of their intent to pursue their own sustainability-related engagement efforts. Since the launch of the second phase of Climate Action 100+, 60 new signatories have joined. We remain steadfast in our commitment to Climate Action 100+ and believe that collaborative engagement is a powerful tool in advancing sustainable business practices.

Chevron joins OGMP 2.0

Chevron Corporation joined the Oil and Gas Methane Partnership 2.0 framework on methane emissions last month. OGMP 2.0 is an independent initiative that requires members to measure their methane emissions (as opposed to simply estimating them) and set credible reduction targets. Reducing methane emissions is one of the most economically viable and immediate means to slow climate change. With this move, all the integrated oil companies (BP, Chevron, ExxonMobil, Shell, TotalEnergies) have joined OGMP 2.0. We sent a letter to Chevron's CEO in November encouraging the company to adopt the framework and had a follow-up meeting with members of Chevron's management team to discuss. Additionally, we conducted engagement with other like-minded investors to understand investor expectations around the company joining, and with OGMP 2.0 officials to better understand the company's initial concerns about adopting the framework. Understanding the company’s concerns, and how they overcame those concerns, will be helpful when engaging other companies who may also initially resist joining OGMP 2.0.

Progress with companies on methane

We filed shareholder proposals related to methane emissions at three U.S. oil and gas producers. A shareholder proposal is when a shareholder, like CalSTRS, puts an item up for a vote at a company’s annual general meeting. Ultimately, we withdrew all three shareholder proposals before they could go to a vote after reaching positive outcomes with each company.

The first proposal was filed at a company that mainly produces natural gas. We had concerns around potential conflicts of interest as the company was purchasing methane detection equipment from the same vendor that was certifying the emissions intensity of the company’s production. We withdrew the proposal after the company agreed to be acquired by another producer that was already part of the OGMP 2.0 framework on methane emissions.

The second proposal was filed at a company with assets in North Dakota. We had concerns with the producer’s high rate of natural gas flaring. We withdrew the proposal after the company agreed to a series of commitments, including formally joining the World Bank’s Zero Routine Flaring by 2030 initiative. Flaring is the practice of burning off excess natural gas due to a range of issues from safety to infrastructure constraints and economics. Flaring results in the release of greenhouse gases and other pollutants.

The final proposal was filed at a company with assets in the western United States. We had concerns about the producer’s potential exposure to regulatory and reputational risk due to the company’s lack of third-party validation of its methane emission intensity disclosures. We withdrew the proposal after the company agreed to obtain certification of its methane intensity from MiQ, an independent nonprofit that requires third-party audits of company data.

Workforce and communities

Improving safety in the mining and tailing sector

The Investor Mining and Tailings Safety Initiative was launched in 2019 following the Brumadinho dam disaster that resulted in the death of 272 people. We expressed support for the initiative’s plan to create an industrywide response to the problem of tailings (the remaining waste product after an ore has been processed for natural resources) storage facilities by developing a set of global industry standards for disclosure on facilities, engineering and governance. This resulted in the creation of the Global Industry Standard on Tailings Management (GISTM). In December 2020, the initiative contacted more than 300 mining companies and requested they support and confirm their timeline of adoption of the GISTM.

In January, 77 companies, which represent a significant portion of the mining industry, committed to implement the GISTM following engagement by the group.

Building on this effort, we committed to support the Global Investor Commission on Mining 2030. The initiative plans to replicate the multistakeholder roundtable model that inspired the tailings initiative to address other mining-related issues. Mining 2030 will include deep sea mining, indigenous rights, automation, impact on land, climate change, critical minerals and child labor.