The world’s largest asset manager started 2020 with a list of climate commitments that alerted the rest of the financial sector. “Climate risk is investment risk,” wrote BlackRock CEO Larry Fink in his annual open letter to chief executives in January. Climate change is rewriting the most basic assumptions of modern finance, he argued, and portfolios that integrate climate risk will provide better long-term returns than conventional investments.
Last year, however, critics were unimpressed by the way BlackRock delivered its rhetoric. So for 2021, the $ 7.8 trillion asset manager has added at least a dozen more items to his climate task list – and they are looking to give strength to the principles set out in January, perhaps increasing the pace of people’s climate plans. companies .
At the beginning of the year, Fink defined a long list of steps to put “sustainability at the center of our investment approach” in 2020, from divesting thermal coal companies to requiring companies in their portfolio to disclose climate and sustainability risks .
The letter caused confusion in banks and companies. “BlackRock is the biggest player in the industry,” says Mindy Lubber, CEO of Ceres, a non-profit organization that presses investors and companies to act in the climate. “When they move, many people follow them.” BlackRock has a considerable stake in more than 90% of S&P 500 companies, along with powerful voting rights, capable of challenging management’s climate decisions if they do not meet their standards.
Even so, BlackRock’s promises, received with cautious optimism, did not change the company’s voting behavior in the first half of 2020. In fact, it worsened.
During the 12 months to June 2020, the company objected to slightly more environmental shareholder resolutions compared to the previous year, rising from 92% to 94%, even with competitors like JPMorgan tripling its support. This sparked a torrent of criticism.
Then BlackRock replied. In his most recent report, published in December, he said he updated his voting policies in July and was directly engaging with management to address perceived deficiencies. The company is now releasing quarterly, rather than annual, reports on the votes of shareholders’ resolutions and the rationale behind its decisions.
Between July 1 and December 4, he had 22 votes on shareholders’ environmental and social proposals (p 23; pdf), supporting half of them (although still less than the total number of resolutions). This included approval dates for the closure of coal plants owned by Australia’s largest energy company and reports on efforts to eliminate deforestation at Procter & Gamble.
“At the beginning of the year, they made some very strong statements,” said Lubber. “Part of the shareholders’ defense was not as strong as we expected. At the end of the year, their votes in shareholders’ resolutions changed substantially. “
BlackRock said: ‘We will vote against the board of directors if they do not act on the climate.’ It is more than symbolic.
Critics say it is not enough. “BlackRock is not really demanding that companies do what they can to stop climate change,” according to a coalition of non-profit environmental groups, including Sierra Club. “It requires companies to only report on the risks arising from climate change” and urges them to “step up”.
But Lubber says this is the first step on a long journey to reform Wall Street. “BlackRock said, ‘We will vote against the board of directors if they do not act on the climate,'” she said. “It is more than symbolic.” In the coming years, she expects the financial sector, including BlackRock, to do two things: align its investment portfolios with a zero net emissions target and force corporate management to set short, medium and long-term goals to eliminate emissions and adopt transparent reports. Companies that fail to do so should lose access to capital, she argues.
We are still a long way from that. However, this month, BlackRock announced a new list of changes for 2021 with the aim of showing how it will make its 2020 climate commitments a reality.
This would expand the number of companies under climate scrutiny from around 440 companies (of which 191 are “on guard” for lack of progress) to more than 1,000 companies. In addition to asking companies to deliver business plans to achieve net global greenhouse gas emissions by 2050, BlackRock has vowed to vote against and oppose the re-election of the administration that failed to “act with sufficient speed and urgency” on climate issues . In early 2021, BlackRock will begin to recognize natural capital, such as biodiversity, forests and water in its company’s assessments. “These are topics on which we actively engage and vote,” says the company.
Next year should now be the biggest on record for integrating climate risk into business DNA. “We will continue to engage where it matters most, in material risks and business practices that support the creation of sustainable value in the long term,” according to BlackRock’s report ‘Our 2021 management expectations’, citing climate change as the main ones. Without this, he argues, companies “will eventually lose their license to operate”.