Tuesday, May 11, 2021

BlackRock’s Sustainability “ Report ” One Year After Fink’s Annual Letter

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When Black rock Chief Larry Fink released his annual corporate missive to CEOs last January, he promised a massive overhaul at the world’s largest asset manager.

With global warming leading to a ‘fundamental overhaul of finance’, Mr Fink said it was time for BlackRock to put durability at the heart of how the $ 8.7 billion fund house invests.

BlackRock would launch new products, take environmental, social and governance issues into account in investment decisions, sell some coal operations and revise the way it deals with companies.

His declaration came after years of critical that BlackRock had been too slow to act on ESG issues, particularly climate change.

The emphasis on sustainability was widely welcomed, but also sparked skepticism. “It’s important to recognize that BlackRock’s claiming climate change is a big investment risk is a positive sign,” says Diana Best of the Big Problem campaign of BlackRock, a network of climate advocacy groups. “There were great parts of Larry’s letter, but we still had questions.

With Mr. Fink’s 2021 letter expected this month, we take a look back at BlackRock’s progress so far.

Stewardship

What BlackRock said it would do: Review its voting policies, improve the transparency of its stewardship activities and start voting against directors if companies do not make enough progress on sustainability issues.

What he did: There has been a great upheaval in BlackRock’s stewardship business, which includes discussions with companies around the world and its voting at annual meetings. Sand pattern was hired to lead the division last year.

The group has focused on increasing transparency around its voting and stewardship activities, including releasing more so-called controversial ballots. It also reviewed its management policies and made a commitment in December to support more shareholders. climate change resolutions, after being criticized in the past, it did not support these proposals.

BlackRock has already started voting against boards of directors at annual meetings, punishing 62 directors last year over climate-related issues. It has stepped up its engagement with 440 carbon-intensive companies.

Catherine Howarth, chief executive of ShareAction, a responsible investment charity, says the decision to vote against directors could have a big impact by forcing boards to respond more closely to investor concerns.

Management improvements have meant BlackRock received a B rating for engagement, down from C + a year ago, in an annual ranking of top asset managers from InfluenceMap, a London-based think tank. But it still lags behind many of its European peers.

“We think they’ve gone from a really long way behind the curve to just behind the curve. They have a lot to catch up on. . . some of their European competitors, ”says Dylan Tanner, Executive Director of InfluenceMap.

Putting ESG at the heart of the investment process

What BlackRock said it would do: Embed ESG into investment portfolios, launch new exchange-traded funds and other ESG-focused products, and publish each fund’s sustainability, including carbon footprint and controversial holdings.

What he did: BlackRock says ESG has been built into all of its active and advisory strategies, covering approximately $ 2.7 billion in assets under management. It doubled the number of ESG index offerings, as well as actively managed sustainable products.

Climate capital

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It is also now possible for investors to verify how sustainable BlackRock’s retail funds are across various metrics, including carbon intensity, and to verify exposure to controversial holdings, such as the companies behind civilian firearms.

Ms Best, however, says that even with these stocks, BlackRock has a “passive problem” – with billions of dollars in assets not subject to the same sustainability requirements as their active strategies.

“Without addressing the passive issue, BlackRock will remain highly exposed and remain the largest investor in coal, oil and gas,” she said.

“They are an absolute monster of a business,” Ms. Best says. “They absolutely need to get it right because they play a decisive role in our climate.

Coal restrictions

What BlackRock said it would do: Divest fossil fuel companies that generate more than 25% of their income from thermal coal by mid-2020 from its discretionary active investment portfolios.

What he did: BlackRock says he ditched the coal as promised. But activists say the asset manager did not go far enough, arguing that its exclusionary policy only applies to a small part of the coal industry and its assets under management.

“In order to effectively exclude the coal industry, BlackRock would have to abandon all companies that plan to expand or build new coal infrastructure,” says Katrin Ganswindt, fundraiser at Urgewald, a non-profit organization. “At the very least, companies with a 20% share of coal in revenues and a 20% share of coal in power generation should be excluded from BlackRock’s portfolios.”

A report released this month by Reclaim Finance, a nonprofit, and Urgewald said BlackRock remains heavily exposed to the coal sector, with holdings totaling $ 85 billion.

BlackRock, however, has used its vote at annual meetings to punish coal companies, voting against directors of groups such as Fortum, and by supporting a shareholder proposal to AGL Energy.

Still, many of their outspoken critics have been positive about BlackRock’s progress over the year, even though they believe there is still work to be done. As Ms. Howarth says: “BlackRock is capable of so much influence and impact. It’s our job to stay stimulating and keep the fire on them.

What BlackRock promised in 2020

  • Integrate environmental, social and governance considerations into all active management decisions in 2020

  • Divestment from fossil fuel companies that generate more than 25% of their income from thermal coal in its discretionary active investment portfolios

  • Alternative activities will abandon any new direct investment in companies that generate more than 25% of thermal coal revenues

  • Publish details of each mutual fund’s sustainability profile, covering areas such as their carbon footprint or data on controversial holdings

  • Start offering sustainable versions of its model portfolios

  • Double the number of ESG exchange-traded funds to 150 by the end of 2021

  • Expanding the number of low carbon strategies – no timeline

  • Disclose voting records quarterly rather than annually

  • Disclose topics discussed with companies during meetings

  • Require companies to disclose information in accordance with the Climate-Related Financial Disclosures Working Group and the Sustainability Accounting Standards Board

  • Set a goal of increasing sustainable assets under management more than ten times this decade – from $ 90 billion in January 2020 to over $ 1 billion

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