March 23, 2021

BlackRock Pushes Companies on Human Rights Risks

Yesterday, I blogged about BlackRock’s 2021 engagement priorities.  Betsy Popken, JT Ho and Carolyn Frantz of Orrick kindly provided this guest post with more about BlackRock’s stewardship focus addressing human rights:

BlackRock, the world’s largest asset manager, which has been a vocal leader in climate change, sustainability and other ESG issues, has now turned its attention to human rights.  BlackRock is now pushing companies to “implement processes to identify, manage, and prevent adverse human rights impacts that are material to their business” and “provide robust disclosures on these practices,” according to a recent Investment Stewardship Commentary.  Moreover, BlackRock believes effective oversight of human rights issues also involves the board: “[T]he responsibility for managing human rights issues…lies with boards and management of companies and the governments that regulate them” (emphasis added).

BlackRock notes that a company that fails to effectively manage potential or actual adverse human rights issues can not only harm the people directly affected, but also expose companies to significant legal, regulatory, operational, and reputational risks from business partners, customers, and communities. Further, it believes that human rights risks may call into question “a company’s social license to operate” in a certain location and benefit from the labor, raw material, or regulatory structures in place.

BlackRock provides a few examples of the sorts of human rights issues it expects companies to use their “best efforts” to address:

– Poor working conditions, substandard wages, and use of forced labor or child labor by a company or its suppliers;

– Community harm or displacement, particularly using contested land or infringing on indigenous rights;

– A hostile or discriminatory workplace; and

– Failure to manage content or applicable privacy laws, standards, or expectations.

Of particular note for companies are BlackRock’s inclusions of privacy and workplace discrimination in the category of human rights. And these are only examples – each company needs to consider human rights particular to its industry, business, and geographical footprint. A broad group of company representatives therefore need to be aware of these expectations, including persons working within the supply chain, human resources and privacy and information security groups.

To meet BlackRock’s expectations, a company should be prepared to show that it “prioritizes human rights across its value chain – its products and services, operations, and suppliers” through its policies and processes, and that it “adheres to applicable voluntary or mandatory disclosure frameworks” such as the United Nations Guiding Principles on Business and Human Rights, which require companies to develop a human rights policy and due diligence and remediation processes, among other things.

Companies should also ensure that “the board oversees human rights,” including “related policies and processes.” In what is becoming trend with institutional investors, who are seeking more effective board oversight of ESG, BlackRock wants companies to disclose whether this oversight occurs at the full board level or is performed by a specific committee, and the “type and frequency of information reviewed.” BlackRock has indicated that it may vote against directors if it believes that the company is not adequately addressing or disclosing material human rights risks. In light of this, companies should consider whether their committee charters need to be changed to specifically allocate oversight of these risks, and how to enhance their proxy statement disclosures and/or other public facing disclosures (e.g. CSR, Sustainability, and Human Rights reports) in a meaningful way.

The bottom line for in-house counsel of companies where BlackRock invests:  It may be time for a comprehensive review of your human rights issues, policies, and governance. Each company should have an understanding of which human rights issues are most salient to its business, which could include, among other things, human rights related to operations, supply chain and sourcing, products and services, employees, and customers or users.  You should ensure you have up-to-date policies addressing them (e.g., a human rights policy, anti-human trafficking and modern slavery policy, conflict minerals statement, supplier code of conduct, anti-harassment policy, privacy policy).  And then you should evaluate whether you have defined processes to monitor, address, and remediate any potential negative impacts from violations of these policies.

Some companies may also benefit from adopting specific goals related to human rights, and actively measuring progress against such goals. Finally, you should make sure your board-level governance of these issues is clearly addressed in the relevant governance documents and that the nature of board or committee oversight can be appropriately and effectively disclosed. Even companies in which BlackRock does not invest today may benefit from following these recommendations – as BlackRock’s announcement will likely spur other institutional investors to seek a better understanding of how companies manage human rights risks.

SEC Launches New “ESG” Page!

The SEC’s website improvements continue. The latest change is Monday’s launch of this new page to bring together all of the latest Commission actions and info on ESG. It reflects the integrated, intra-agency approach to this topic – and the SEC says that it will be updated with more responses to investor demand on this topic. Clearly all things ESG are moving right along at the agency. In a further nod to ESG prominence, the page will be accessible right through the SEC’s homepage.

Transcript: “Your CD&A – A Deep Dive on Pandemic Disclosures”

We’ve posted the transcript for our recent webcast: “Your CD&A – A Deep Dive on Pandemic Disclosures.” Mike Kesner of Pay Governance, Hugo Dubovoy, Jr. of W.W. Grainger and Cam Hoang of Dorsey shared their thoughts on:

– Trends & Investor Expectations for COVID-Related Pay Decisions

– Adjustments to CD&A Format in Light of Pandemic

– Investor & Proxy Advisor Policies for Disclosure

– Framework of Key Factors for Exercising Discretion

– Linking Your CD&A to Your Broader ESG and Human Capital Initiatives

– Ensuring Consistency Between Your CD&A and Minutes

– Lynn Jokela