January 16, 2020

BlackRock on Climate Change: “Against” Votes Are Coming?

It’s that time of year again! Larry Fink – BlackRock’s CEO – is out with his annual letter to CEOs. This year, he says BlackRock is taking a more aggressive stance on sustainability. Here’s the high points:

– Continued emphasis that corporate purpose and consideration of a broad range of stakeholders is the “engine of long-term profitability”

– Encouraging companies to publish SASB-based sustainability info and disclose TCFD-based climate-related risks – BlackRock will use the disclosures and engagements to determine whether companies are adequately managing risks

– BlackRock will vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them

That last one is a biggie – but there’s not a lot of detail on what it really means. So as usual, some are skeptical of whether BlackRock’s commitments will go as far as the letter implies. But, as emphasized in this NYT article and a recent blog from Liz, the asset manager is getting more and more pressure from its investors to “walk the talk” on E&S issues. At the same time that the CEO letter went out, BlackRock published this letter to clients that details its sustainability efforts. Here’s some interesting tidbits from that:

– For active funds, BlackRock will accelerate to a “sustainable investing” approach and divest from the coal sector (i.e., as Matt Levine points out, maybe they’ll nudge clients into more sustainable investments, but this Bloomberg article explains that divestment won’t touch some of the biggest diversified producers)

– BlackRock is working with index providers to provide – and standardize – sustainable versions of flagship indexes (which will exclude businesses with high ESG risks)

– BlackRock’s engagement priorities for this year will be mapped to the UN Sustainable Development Goals

– BlackRock will start disclosing its votes quarterly – or “promptly” in the case of high-profile votes (as Liz has blogged on our “Proxy Season Blog, prompt – or even advance – disclosure of voting decisions is an emerging trend that could have a big impact)

– BlackRock’s annual stewardship report will start disclosing topics discussed during each engagement with a company

The client letter also touts that (just last week) BlackRock became a signatory to Climate Action 100+, which is led by Ceres. Here’s Ceres’ press release – which explains that members of the coalition commit to engage with companies to reduce emissions, implement a strong governance framework which explains the board’s role in overseeing climate risks & opportunities, and improve disclosure. However, as this Financial Times article points out, firms are under no obligation to vote for climate change resolutions even after joining Climate Action 100+.

We’re constantly posting ESG info in our “ESG” Practice Area.  There you’ll find information on ESG voting and disclosure trends, investor policies and other engagement tips and resources.  We also have information posted in our “Institutional Investors” Practice Area.

Risk Factors: Disclosure Trends

The other day I blogged about considerations for this year’s 10-K disclosures – and one of the biggest things to think about is your risk factors.  For more on that topic, this recent Intelligize blog summarizes risk factor trends over the last year.  Not too surprising, the “top 5” most common risk factors were:

– Failure to compete effectively

– Dependence on employees

– Business (miscellaneous)

– Cybersecurity, data privacy, and information technology

– Operational disruptions

And, for risk factors that saw the biggest increase in citations, the top 3 were:

– International trade restrictions

– Employee misconduct

– Anti-corruption law

As John blogged last summer, sadly “active shooter” risk factors were also rising among certain companies.

Investors Want You To Think About Stakeholders?

Despite some of the backlash to the BRT’s redefined statement of corporate purpose, a recent report from Edelman, a communications firm, found that most institutional investors want companies to balance the needs of all stakeholders – shareholders, customers, employees, suppliers and communities. The report summarizes findings from a survey of over 600 institutional investors – and appears to align with statements made by some large shareholders, e.g. BlackRock & Vanguard. Here’s what I found most interesting:

– 86% of surveyed investors said that they would consider investing with a lower rate of return if it meant investing with a company that addresses sustainable or impact investing considerations

– 90% of surveyed investors said that they would support a “reputable” activist investor if they believed change was necessary at a company

– Lynn Jokela