Published on 02 March 2021

SUSTAINABLE FINANCE

BlackRock strengthens its engagement policy on climate risk

In an open letter, the world’s largest asset manager formalized climate strategy requirements for the companies in which it invests. The purpose of this offensive move is to align the asset manager’s engagement and voting practices with the intentions of CEO Larry Fink, as presented in his annual letter to corporate executives.

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@CC0

BlackRock will now vote against management if a company does not have a clear and quantifiable strategy on climate issues. This is a significant change to its engagement policy, which is often criticized for its passivity – or even hostility – to shareholder efforts on climate. This new shareholder engagement policy outlines the guidelines issued by Larry Fink – CEO of BlackRock – in his annual letter to company executives. Nevertheless, this engagement seems to be of minimum effort considering the asset manager’s scope of influence.

BlackRock’s new demands are based on two main points: monitoring CO2 emissions (scopes 1 and 2, as well as scope 3 for the most polluting companies), and reduction targets compatible with the Paris Agreement. Carbon offsetting is only a "complement, not a replacement…for emissions reductions" according to BlackRock’s paper, while also calling for more climate expertise on executive boards.

BlackRock will use the power of its vote to ensure the advancement of its climate demands. The asset manager says it is ready to support shareholder resolutions going in this direction, and will even vote against reappointing management that would try to ignore climate issues.

Progress under surveillance

This development comes after a year of heavy criticism for BlackRock, which has been denounced for its dismal engagement record. The NGO Majority Action noted that in 2020 the group voted for the reappointment of 98% of the S&P 500 oil and gas company leaders. Additionally, BlackRock voted against 10 of the 12 resolutions supported by the Climate Action 100+ coalition; the same coalition it has been a member of since January 2020.

The next general meeting season will be a test to assess these new ambitions. The absence of scope 3 requirements for companies outside the most polluting sectors, and the lack of emission reduction objectives derived from Science Based Targets, will certainly spark new debates.

BlackRock is unlikely to become a climate champion. Its active equity funds represent only one-tenth of the volume of its equity ETFs (nearly $4 trillion in assets, according to Reuters). Limited by inadequate management budgets and index tracking, passive funds have not yet proven themselves as effective vehicles for long-term engagement approaches.

The latest communication from Fink has already reignited controversy around BlackRock. Speaking at the US Climate Finance Summit last month, Fink said he viewed divestment as a form of "greenwashing". This puts his group’s new engagement policy under a strange umbrella.

Paul Kielweisser


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