The world’s largest asset manager kicked off 2020 by laying out a list of climate pledges that put the rest of the financial sector on notice. “Climate risk is investment risk,” wrote BlackRock’s 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 deliver better long-term returns than conventional investments.
Over the last year, though, critics were less than impressed with how BlackRock delivered on its rhetoric. So for 2021, the manager of $7.8 trillion in assets has added at least a dozen more items to its climate to-do list—and they seek to give teeth to the principles laid out this January, perhaps increasing the pace of companies’ climate plans.
At the beginning of the year, Fink laid out a laundry list of steps putting “sustainability at the center of our investment approach” in 2020, from divesting from thermal coal companies to demanding that companies in its portfolio disclose climate and sustainability risks.
The letter sent banks and companies scrambling. “BlackRock is the biggest player on the block,” says Mindy Lubber, CEO of Ceres, a non-profit pressuring investors and companies to act on climate. “When they move, a lot of people follow.” BlackRock has a sizeable stake in more than 90% of S&P 500 companies, along with powerful voting rights capable of challenging management’s decisions on climate if they don’t meet its standards.
Yet BlackRock’s pledges, greeted with cautious optimism, failed to change the company’s voting behavior in the first half of 2020. If anything, it worsened.
During the 12 months up to June 2020, the company opposed slightly more environmental shareholder resolutions compared to the prior year, rising from 92% to 94%, even as competitors such as JPMorgan tripled their support. That unleashed a torrent of criticism.
So BlackRock responded. In its most recent report, published in December, it said it updated its voting policies in July and was engaging directly with management to fix perceived shortfalls. The firm is now disclosing quarterly, rather than annual reports, on shareholder resolutions votes, and the rationale behind their decisions.
Between Jul. 1 and Dec. 4, it cast 22 votes on environmental and social shareholder proposals (p 23; pdf), supporting half of them (although still less than the total number of resolutions). These included approving dates to shut down coal plants owned by Australia’s largest energy company and reporting on deforestation elimination efforts at Procter & Gamble.
“At the beginning of the year they made some very strong statements,” said Lubber. “Some of their shareholder advocacy was not as strong as we had hoped. By the end of the year, their votes on shareholder resolutions have changed substantially.”
Critics contend it’s not enough. “BlackRock isn’t actually demanding that companies do what they can to halt climate change,” according to a coalition of non-profit environmental groups, including the Sierra Club. “It’s demanding that companies merely report on risks to them from climate change,” and calling on them to “step it up.”
But Lubber says this is the first step in a long journey to reform Wall Street. “BlackRock has said, ‘We will vote against the board of directors if they don’t act on climate,'” 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-zero emissions target, and force corporate management to set short, medium, and long-term goals to eliminate net emissions and adopt transparent reporting. Companies that fail to do this should lose access to capital, she argues.
We’re still a long way from there. But this month, however, BlackRock has announced a new slate of changes for 2021 intended to show how it will make its 2020 climate commitments a reality.
It would expand the number of companies under climate scrutiny from about 440 companies (of which 191 are “on watch” for lack of progress) to more than 1,000 companies. In addition to asking companies deliver business plans to reach net-zero global greenhouse gas emissions by 2050, BlackRock vowed to vote against and oppose the re-election of management who failed to “move with sufficient speed and urgency” on climate matters. By early 2021, BlackRock will start recognizing natural capital such as biodiversity, forests, and water in its company evaluations. “These are topics we actively engage and vote on,” according to the company.
Next year is now set to be the biggest on record for integrating climate risk into the DNA of doing business. “We will continue to engage where it matters most, on the material risks and business practices that support sustainable long-term value creation,” according to BlackRock’s report ‘Our 2021 Stewardship Expectations,’ naming climate change as chief among them. Without this, it argues, companies “will ultimately lose the license to operate.”