The world’s largest asset manager started 2020 by compiling a list of climate promises that put the rest of the financial sector on notice. “Climate risk is investment risk,” BlackRock CEO Larry Fink wrote in January in his annual open letter to CEOs. Climate change rewrites the basic assumptions of modern finance, he argued, and climate risk-integrating portfolios will deliver better long-term returns than conventional investments.
Over the past year, however, critics have been less impressed with how BlackRock delivered its rhetoric. So the $ 7.8 billion manager has added at least another dozen items to his climate to-do list in 2021 – and they want to brush up on the principles set out in January, which may increase the pace of business climate plans . .
At the beginning of the year, Fink outlined a growth list of steps that will put ‘sustainability at the heart of our investment approach’ by 2020, from the sale of thermal coal companies to the requirement for companies to disclose climate and sustainability risks in their portfolio.
The letter caused banks and companies to scramble. “BlackRock is the biggest player in the block,” says Mindy Lubber, CEO of Ceres, a nonprofit that puts investors and companies under pressure to respond to the climate. “If they pull, a lot of people follow.” BlackRock has a major stake in more than 90% of the S&P 500 businesses, along with powerful voting rights that could challenge management’s climate decisions if they do not meet the standards.
Yet the promises of BlackRock, greeted with cautious optimism, failed to change the company’s voting behavior in the first half of 2020. If anything, it got worse.
During the twelve months to June 2020, the company opposed more efficient decisions by environmental shareholders over the previous year, rising from 92% to 94%, even though competitors such as JPMorgan tripled their support. This sparked a shower of criticism.
So BlackRock replied. In his latest report, published in December, he said he updated his voting policy in July and is in direct contact with management to resolve alleged deficiencies. The firm now publishes quarterly, rather than annual reports, on the votes of shareholders’ decisions and the reason for them.
Between 1 July and 4 December, it cast 22 votes on proposals for environmental and social shareholders (p 23; pdf), supporting half of them (although still less than the total number of resolutions). These include approving dates to close the coal plants in Australia’s largest energy company and reporting on the elimination of deforestation at Procter & Gamble.
“At the beginning of the year, they made very strong statements,” Lubber said. ‘Some of their advocacy for shareholders was not as strong as we had hoped. By the end of the year, their votes on shareholder decisions had changed significantly. ”
BlackRock said: “We will vote against the board of directors if they do not act on climate change.” It is more than symbolic.
Critics argue that this is not enough. “BlackRock does not really demand that businesses do what they can to stop climate change,” according to a coalition of non-profit environmental groups, including the Sierra Club. ‘It demands that companies simply report on the risks of climate change’, and called on them to increase it.
But Lubber says it’s the first step in a long journey to reform Wall Street. “BlackRock said, ‘We will vote against the board of directors if they do not act on climate change,'” she said. “It’s more than symbolic.” In the coming years, she expects the financial sector, including BlackRock, to do two things: align their investment portfolios with a net release target, and force corporate governance to set short-, medium- and long-term goals to net eliminate emissions. and accept transparent reporting. Companies that do not do this should lose access to capital, she argues.
We are still far from there. But this month, however, BlackRock announced a new change for 2021 that is meant to show how it will make its climate commitments a reality in 2020.
This will expand the number of companies under climate survey from around 440 companies (of which 191 are ‘vigilant’ due to lack of progress) to more than 1 000 companies. In addition to asking companies to deliver business plans to achieve net zero greenhouse gas emissions by 2050, BlackRock has vowed to vote against and resist the re-election of management that is not moving with sufficient speed and urgency on climate issues. . By early 2021, BlackRock will begin recognizing natural capital such as biodiversity, forests and water in its company evaluations. “These are topics that we are actively working on and that we are voting on,” according to the company.
Next year will now be the largest on record for integrating climate risk into the DNA of doing business. “We will continue to pursue, where it is most important, the significant risks and business practices that support long-term sustainable value creation,” according to BlackRock’s report ‘Our 2021 Stewardship Expectations’, which calls climate change the most important among them. Without it, according to the argument, companies will eventually lose the license to operate.