December 20, 2022

BlackRock’s Global Principles: Updates on “Natural Capital” & “Sustainability Reporting”

Blackrock Investment Stewardship made two modifications to its 2023 Global Principles, prompted by market-level developments:

Nature-related factors: We continue to encourage companies to consider reporting on material sustainability-related risks and opportunities in their business models. While guidance is still under development for a unified disclosure framework related to natural capital, given the growing materiality of these issues for many businesses, we believe enhanced reporting would help investors’ understanding, and we note that the emerging recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) may prove useful to some companies. We recognize that some companies may report using different standards, which may be required by regulation, or one of a number of other private sector standards.

Sustainability reporting: We recognize that companies may need time after fiscal year-end to collect, analyze and report accurate climate- and sustainability-related data. To give investors time to assess the data, we encourage companies to produce climate and other sustainability-related disclosure sufficiently in advance of their annual meeting.

The Global Principles are organized around 7 key themes:

– Boards & directors

– Auditors & audit-related issues

– Capital structure, mergers, asset sales, and other special transactions

– Compensation & benefits

– Material sustainability-related risks & opportunities

– Other corporate governance matters & shareholder protections

– Shareholder proposals

The Principles continue to urge companies to disclose strategies that they have in place to mitigate material risks to the long-term business model associated with a range of climate-related scenarios – noting that those strategies must be defined by each company, it is not the role of BlackRock or other investors. Here’s more detail on disclosure expectations:

Many companies are asking what their role should be in contributing to an orderly and equitable transition – in ensuring a reliable energy supply and energy security, and in protecting the most vulnerable from energy price shocks and economic dislocation. In this context, we encourage companies to include in their disclosure a business plan for how they intend to deliver long-term financial performance through a transition to global net zero carbon emissions, consistent with their business model and sector.

We look to companies to disclose short-, medium- and long-term targets, ideally science-based targets where these are available for their sector, for Scope 1 and 2 greenhouse gas emissions (GHG) reductions and to demonstrate how their targets are consistent with the long-term economic interests of their shareholders. Many companies have an opportunity to use and contribute to the development of low carbon energy sources and technologies that will be essential to decarbonizing the global economy over time. We also recognize that continued investment in traditional energy sources, including oil and gas, is required to maintain an orderly and equitable transition — and that divestiture of carbon-intensive assets is unlikely to contribute to global emissions reductions. We encourage companies to disclose how their capital allocation to various energy sources is consistent with their strategy.

Liz Dunshee