Fund giant BlackRock has released its stewardship playbook, a rough plan that furthers the industry-rattling pledge for sustainability from its leader Larry Fink earlier this year.
BlackRock, which manages some $7.4 trillion, claims its size allows it to more thoroughly engage with the companies it invests in. Its Wednesday release laid out its corporate engagement priorities for the year. The next shareholder proxy season looms in early April, which will test BlackRock’s commitment to stewardship. Proxies are one process by which shareholders push boards to take actions, and they’ve long divided powerful investors from the less powerful. Among other issues, environmental, social and governance (ESG) topics tend to feature in proxies.
“BlackRock approaches investment stewardship in a strategic, differentiated way,” said Barbara Novick, co-founder and vice chairman of BlackRock, in a release. “We have the capacity to engage companies year-round in meaningful discussions on the specific steps they should be taking to manage long-term risks and opportunities, including increasingly material sustainability issues.”
“We engage on relevant issues with companies regardless of whether or not they have received a shareholder proposal,” she added.
Observers, responding to Fink’s annual letter to CEOs earlier this year, noted a “materially different” stance compared to only one year earlier. Sooner rather than later, Fink said then, sustainable investments that take into account climate change and other factors will deliver better returns. In other words, they’re no longer just a feel-good consideration, but seen as key to delivering the best possible returns to shareholders over the long run.
The proclamation has upped the pressure, at least in the news media, on Fink and team to now deliver. The asset manager is under particular pressure as it remains among the biggest investors in fossil-fuel polluters, including Exxon Mobil Corp. /zigman2/quotes/204455864/composite XOM +0.95% , Royal Dutch Shell /zigman2/quotes/205095589/composite RDS.A -2.02% and BP /zigman2/quotes/207305210/composite BP -0.52% .
Among the stewardship areas in the Wednesday release are: board quality; environmental risk and opportunities; corporate strategy and capital allocation; compensation; and human-capital management.
“BlackRock expects companies to improve how they disclose sustainability-related risks and to demonstrate a plan for and progress on managing material risks and opportunities,” said Michelle Edkins, global head of BlackRock investment stewardship. “Where companies are making progress on these critical issues, we expect to support management and the board. However, given the groundwork laid over the past several years, we will hold directors accountable where we have concerns about lack of progress on managing material sustainability factors or inadequate disclosure on business relevant risks and opportunities.”
BlackRock’s size also brings greater responsibility. Its investment-stewardship team, although the largest among fund managers, numbers less than 50, meaning each member is responsible for as many as 500 companies. Rivals Vanguard Group has a stewardship team of 35 people, State Street Global Advisors has 12, Legal & General Investment Management has 16 and JPMorgan Asset Management has eight, by comparison.
BlackRock is moving forward with its stewardship initiative at the same time the Securities and Exchange Commission has solicited public comment on two proposed rules that would reform corporate proxy voting.
One rule would require more transparency from proxy advisory firms that vote shares for institutional investors. The other rule would disqualify ballot resolutions that an overwhelming majority of shareholders repeatedly reject.
Both rules are intended to make public ownership less onerous and less vulnerable to manipulation by special interests, their proponents argue.
But advocates for individual investors, including the American Securities Association (ASA), want the regulators to pump the brakes. ASA in a public comment on the proposed SEC rules have urged that big asset managers like BlackRock deserve scrutiny too.
Passive index equity funds comprise more than half of the $8.5 trillion in U.S. equity funds, and nine in 10 public companies count BlackRock /zigman2/quotes/207946232/composite BLK -1.53% , Vanguard or State Street /zigman2/quotes/209758976/composite STT -2.40% as their largest shareholder.
One ASA concern is what it calls “groupthink” among asset managers, proxy firms and pension funds. Many now vote in lockstep on environmental, social and governance (ESG) issues, notes the Wall Street Journal editorial board , which has said Fink’s stand has brought regulatory backlash.