April 28, 2020

BlackRock’s Catching Flack From all Sides

When you’re the largest asset manager, any statements garner a lot of attention.  Take for example, Larry Fink’s January letter to CEOs.  A lot of media outlets reported on it, we blogged about it as did many others.  Now, BlackRock, in its role assisting the Federal Reserve in administering some of the CARES Act relief programs, has arrows coming at it from all directions.

First, as discussed in this NYT article, a group of conservative leaning senators sent a letter to Fed Chairman Powell voicing concerns that BlackRock might avoid funding energy and transportation companies due to BlackRock’s own climate-related investment policies.  This was followed by a letter from senators on the other side of the aisle requesting the underlying investment guidelines provided to BlackRock for use in managing the Fed’s programs and warning about use of federal funds “to help sustain industries that may drive a future climate crisis.”

But, there were more arrows sent BlackRock’s way.  Here’s a post from the Federalist about a letter sent to BlackRock’s CEO from representatives of several conservative-leaning organizations, asking BlackRock to reconsider its plan to operate under a stakeholder model rather than supporting a shareholder primacy model.  The letter goes on by urging BlackRock to stand against “unnecessary and harmful ESG shareholder proposals.”  Coming at it from the other side, as part of an Earth Day event held last week – organized by a group named “BlackRock’s Big Problem” – the event flyer asked participants to call BlackRock to request it follow through on its climate commitment that BlackRock’s CEO made in his letter earlier this year.

BlackRock recently issued its 2020 Engagement Priorities and I blogged about it on our “Proxy Season Blog”.  There was a fair amount of focus on environmental risks and opportunities in that report.  No doubt though, by the end of the 2020 proxy season, somebody will likely have gripes about whatever BlackRock does.  It seems when you’re the largest asset manager, you’re a big target and everybody wants the influence you carry on their side.

California Board Diversity Law Withstands Legal Challenge

You may remember back when California’s board gender diversity law (SB 826) went into effect, then California Governor Jerry Brown reportedly said his chief concern was possible legal challenges.

Well, a couple of suits were filed and one of them was recently dismissed.  The plaintiff was seeking a permanent injunction preventing enforcement of the California law by saying it was unconstitutional under the 14th Amendment.  Last week, a federal judge in California dismissed the case on the basis of lack of standing.  See Cydney Posner’s Cooley blog for more on this story.   And, stay tuned – it looks like this case will carry on as the plaintiff filed an appeal – see this blog post from Keith Bishop.

Earlier this year, California issued a report on the status of compliance with the new law through December 2019.  The report said that of the 330 companies that filed the required disclosure statement, 282 reported compliance with the state’s board gender diversity requirement.  Note that the 330 companies that filed the required disclosure statement represent slightly more than half of the impacted companies (meaning they are publicly held with principle executive offices in California).

Even with California companies seemingly increasing board diversity, the law isn’t out of the woods yet as the appeal in the case has been filed and there’s another suit challenging California’s law that’s ongoing in California State Court – Broc blogged about that back when it was first filed.

ESG Ratings: Morningstar & Sustainalytics Join Up

Liz blogged a little over a year ago about the crowded ESG ratings field.  In case you missed it, last week, two firms joined forces when Morningstar announced it would acquire Sustainalytics.  Morningstar already owned about 40% of Sustainalytics and now it’s buying the remaining 60% when the transaction closes later this year.

The combination should be a boost for Sustainalytics – Morningstar is a much larger organization and is spread across more markets.  Like other deals, time will tell exactly how it shakes out…it’s expected that Morningstar will complete the integration of Sustainalytics data across its various products but anecdotally, my understanding is that Morningstar has everything it needs from Sustainalytics through the firms’ longstanding relationship.

If anything, Morningstar will now compete more directly with MSCI so there may be some investors who switch to Morningstar/Sustainalytics – although, surprisingly, a lot of investors already switch between MSCI and Sustainalytics and apparently some do so fairly often.

– Lynn Jokela