Microsoft investor seeks report on climate risk of 401(k) plan investments

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November 9, 2022 - A Microsoft Corp. shareholder is urging fellow investors to support its proposal that the technology giant analyze the financial risks of its 401(k) plan offerings, including its investment in high-carbon companies.

Microsoft Corp. PX14A6G, 2022 WL 16700138 (Nov. 4, 2022).

In a Nov. 4 Securities and Exchange Commission filing, As You Sow said Microsoft should report on its findings, such as whether investing in companies that contribute to climate change puts younger 401(k) plan participants at greater economic risk than participants who are close to retirement.

According to the proposal, plan investments are not immune to the systemic risks posed by climate change, which include physical impacts to infrastructure, supply chains and resource availability.

In addition to these risks, the proposal noted, "shifting regulatory and business environments will increase the transition costs for those caught flat-footed."

As You Sow said a recent analysis showed that Microsoft's 401(k) plan invests as much as $2 billion, or at least 5% of total assets, in fossil fuel industries.

The plan also invests more than $100 million in deforestation-risk agricultural commodities, the investor said.

According to As You Sow, retirement plans can be harmed by both physical and transition risks from climate change. Physical risks can include short-term losses from the increased occurrence of extreme weather, while transition risks include costs from policy and market changes that companies need to transition to a lower-carbon economy, the investor said.

Shareholders should support the proposal, according to As You Sow, because the climate risk created by Microsoft's investments contradicts its commitment to reducing its operational and supply chain emissions.

Microsoft has publicized "ambitious operational climate goals," including a pledge to become carbon-negative by 2030, reduce scope 1 and 2 emissions to near-zero by the middle of the decade, and reach 100% renewable energy by 2025, As You Sow said.

As You Sow offered sharp criticism after Microsoft's board recommended that shareholders vote against the proposal.

The investor said the board blamed its failure to manage the 401(k) plan's climate risk on its fiduciary duty under the Employee Retirement Income Security Act of 1974.

But ERISA "does not require the company to ignore the material risk to beneficiaries' investments," the investor said.

The board also argued that it has provided "access to investment options that take into account or specifically focus on green energy in climate solutions," referring to the plan's self-directed brokerage window.

The investor said this assertion amounts to little more than an ineffective delegation of the company's responsibility to manage the material risks of climate change to beneficiaries, adding that self-directed options are seldom used.

Shareholders will vote on the proposal at Microsoft's annual meeting, scheduled for Dec. 13.

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