Microsoft faces proposal over climate risks and 401(k) plan

Nov 02, 2022
Shareholders to vote at company’s December 13 AGM

Shareholders in Microsoft are set to vote on a proposal seeking information on managing risks from climate change in the company’s 401(k) plan.

The vote will take place at the company’s AGM on December 13, one of the later meetings in the year. The resolution, filed by As You Sow, requests that Microsoft’s board ‘provide a report assessing how the company’s 401(k) retirement funds manage the growing systemic risk to the economy created by investing retirement plan funds in companies contributing significantly to climate change.’

In its supporting statement, As You Sow writes that this analysis should include whether the plan’s decision-makers have considered:

  • Climate risk in portfolio offerings
  • Whether including high-carbon companies in plans adds to greater economic volatility over time, and the impact this has on fund performance
  • Whether including high-carbon companies contributing to climate change puts younger plan participants’ retirement funds at greater economic risk than the funds of those who are nearer retirement age.

‘Shareholders applaud Microsoft for adopting ambitious climate goals, including its commitment to become carbon-negative by 2030, reduce Scope 1 and Scope 2 emissions to near zero by the middle of the decade through energy-efficiency work, and reach 100 percent renewable energy by 2025,’ the proponents write.

‘While our company has made significant efforts to address climate change across its operations, data from Department of Labor filings showing company retirement plan options and invested amounts suggest to investors that Microsoft has failed to address the material risks of climate change in its 401(k) plan in alignment with the duty to select retirement plan investment options in the best interests of plan participants and beneficiaries.’

As You Sow adds that the threat climate change poses to employees’ life savings means Microsoft should demonstrate that it is safeguarding their financial security over time. ‘Failing to satisfy this basic duty could be a liability for the company, creating reputational risk and making it more difficult to retain employees increasingly concerned about catastrophic climate impacts,’ the group writes.

Danielle Fugere, president and chief counsel of As You Sow, told Corporate Secretary sister publication IR Magazine recently that she expects to see other 401(k)-related proposals being filed for the 2023 proxy season.

Microsoft’s board urges shareholders to vote against the proposal. Writing in its 2022 proxy statement, the company argues that the resolution ‘mischaracterizes the operation of Microsoft’s 401(k) plan, over-simplifies or disregards the strict fiduciary framework to which the plan is subject under applicable law, and minimizes the efforts made to offer plan participants a broad range of investment options, including those that account for [ESG] factors, within that framework.

‘We do not believe the request for Microsoft’s board to provide a report assessing how available funds within the Microsoft 401(k) plan are addressing risks of climate change is the appropriate mechanism to ensure the prudent ongoing stewardship of the plan, in accordance with applicable law.’

The company writes that its 401(k) plan is overseen by a management-level fiduciary committee, which uses several investment advisers including a third-party fiduciary investment consultant and works to offer plan participants a broad range of investment strategies across different asset classes and investment styles. This includes providing access to investment options that take into account or focus on green energy and climate solutions, Microsoft says.

Among other things, it notes that almost all of the investment managers for funds offered in the Microsoft 401(k) plan’s core lineup are signatories to the UN Principles for Responsible Investment and incorporate ESG factors into their investment process and practices to varying extents.

A Microsoft spokesperson had no comment beyond the proxy statement.

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