Spring is in the air and many in-house members are busy preparing for shareholder engagement meetings. To help companies prepare, last week BlackRock issued its 2021 engagement priorities along with a slew of memos relating to stewardship engagements. The stewardship engagement memos address BlackRock’s engagement on board diversity, human capital management, climate risk, natural capital, long-term strategy, executive incentives and human rights.
BlackRock’s 2021 engagement priorities map each priority to UN Sustainable Development Goals – and include key performance indicators for each engagement priority. It’s not a surprise that one of the asset manager’s engagement priorities relates to how companies are dealing with climate-related risks. As emphasized in Larry Fink’s January letter to CEOs, the “climate risk” KPIs include expectations for companies to explain how they are aligned with achieving net-zero GHG emissions by 2050. The “natural capital” KPI builds on that theme, and encourages companies to disclose how their business practices are consistent with sustainable use and management of natural capital. It also calls on companies with material dependencies or impacts on natural habitats to publish “no-deforestation” policies and strategies on biodiversity.
One takeaway from BlackRock’s 2021 engagement priorities is that it appears the asset manager may vote “for” more shareholder proposals focused on sustainability. Here’s an excerpt:
In 2021, we see voting on shareholder proposals playing an increasingly important role in our stewardship efforts, particularly on sustainability issues. As a long-term investor, BIS has historically engaged to explain our views on an issue and given management ample time to address it. However, given the need for urgent action on many business relevant sustainability issues, we will be more likely to support a shareholder proposal without waiting to assess the effectiveness of engagement. Accordingly, where we agree with the intent of a shareholder proposal addressing a material business risk, and if we determine that management could do better in managing and disclosing that risk, we will support the proposal. We may also support a proposal if management is on track, but we believe that voting in favor might accelerate their progress.
State Street Releases 2021 Proxy Voting & Engagement Guidelines
Keeping step with BlackRock, last week State Street released its 2021 proxy voting & engagement guidelines. With State Street’s update, I was happy to see the asset manager also released a summary of material changes. We’ve blogged on our “Proxy Season Blog” about some of these changes or updates before – such as State Street’s policy to vote “against” nominating committee chairs at S&P 500 companies that don’t disclose gender and racial/ethnic board diversity information and integration of the asset manager’s R-Factor score into voting. State Street is reiterating that beginning in 2022, it will vote “against” certain directors at S&P 500 companies and other indices that are underperformers on their R-Factor score, where they haven’t shown positive momentum in the previous two years.
Other changes relating to racial and ethnic diversity disclosures include, starting in 2022, State Street will vote “against” comp committee chairs at S&P 500 companies that don’t disclose workforce EEO-1 data and “against” nominating committee chairs at S&P 500 and FTSE 100 companies that don’t have at least one director from an underrepresented group.
This excerpt from State Street’s summary highlights two changes to executive pay proposals:
Ongoing high level of dissent against a company’s compensation proposals may indicate that the company is not receptive to investor concerns. If the level of dissent against a company’s remuneration report and/or remuneration policy is consistently high, and we have determined that a vote against a pay-related proposal is warranted in the third consecutive year, we will vote against the Chair of the Compensation Committee.
For problematic pay practices, State Street may vote “against” the re-election of members of the Compensation Committee if the asset manager has serious concerns about pay practices and/or if the company has not been responsive to shareholder pressure to review its approach.
Check out State Street’s complete 2021 voting policies – they’ve issued Global Voting and Engagement Principles, North American Proxy Voting and Engagement Guidelines and Global Proxy Voting and Engagement Guidelines for E&S Issues. State Street also released an updated engagement protocol document – this provides guidelines for engaging with the asset manager along with information about how to request an engagement meeting with State Street and how to request a company’s R-Factor score.
Circle March 30th for Our Upcoming Webcast: “Shareholders Speak: How This Year’s Expectations Are Different”
To learn more about this year’s institutional investor engagement priorities and voting expectations, mark your calendars for March 30th to tune in for our webcast – “Shareholders Speak: How This Year’s Expectations Are Different” – you’ll hear from Rob Main, Managing Partner & COO of Sustainable Governance Partners, Yumi Narita, Executive Director of Corporate Governance of the Office of NYC Comptroller, Ryan Nowicki, Assistant VP Asset Stewardship of State Street Global Advisors and Danielle Sugarman, Director Investment Stewardship of BlackRock.
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– Lynn Jokela