- The world’s biggest investor is putting environmental and social priorities at the forefront of its investment approach.
- With assets under management of more than $7 trillion, BlackRock has significant influence on most of the companies in the S&P 500.
Investors are increasingly interested in companies that are environmentally and socially conscious, and the world's largest asset manager is no exception.
In an annual letter to CEOs earlier this year, BlackRock Chairman and CEO Larry Fink said "climate change has become a defining factor in companies' long-term prospects … But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance."
In the midst of the Covid-19 pandemic, "investors and others will be looking to see how companies are rebuilding their businesses for long-term sustainability and value creation," BlackRock said in its 2021 stewardship expectations.
"The changes we have made to our stewardship principles and voting guidelines strengthen our expectations of management and boards in ensuring companies have a sustainable long-term business model."
Among the changes being implemented in 2021, BlackRock said it expects companies to disclose a plan for transitioning to a lower carbon economy, report key stakeholders and business interests, and improve racial and gender diversity on large corporate boards.
Indeed, with assets under management close to $7.81 trillion as of the third quarter, BlackRock has significant influence in proxy battles.
In 2020, BlackRock held a substantial stake in approximately 91% of S&P 500 companies and across these companies that position averaged 7.7%, according to data compiled by Jackie Cook, director of sustainable stewardship research at Morningstar, based on annual proxy reports.
Given the size BlackRock's vote represents, these new guidelines could be the difference between the slow pace of change at companies and more immediate action.
"Where we believe companies are not moving with sufficient speed and urgency, our most frequent course of action will be to hold directors accountable by voting against their re-election," BlackRock said in the report.
"The effectiveness of voting against directors is well-documented."
Cook said it's the first time BlackRock "really said explicitly that shareholder resolutions work in driving change."
"That's exactly what shareholder proponents have been saying for a long time," she added.
President-elect Joe Biden has called climate change "the No. 1 issue facing humanity."
Impact investing experts say that the President-elect's remarks, along with the $7 trillion fund manager's plans, represent an important shift in favor of addressing environmental challenges.
"There's no question that we now have a more conducive political environment," Cook said. "Shareholders are more emboldened to act on these issues, particularly these large asset managers."
BlackRock's willingness to support more shareholder resolutions on socially responsible issues, including climate change, will set the tone for smaller investors, as well, said Cook.
As these policies become more relevant, "it becomes necessary for investors to think beyond their particular portfolios."