Ahead of proxy season, investment giant BlackRock has released it stewardship engagement priorities for 2021, with new key focus areas including investee companies’ management of natural capital and their human rights impact.
The updated priorities form part of an increasing focus by the investment manager on sustainability issues. BlackRock CEO famously placed ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. More issues on the radar screens of asset managers with the publication of his landmark letter to CEOs early last year, indicating that sustainability, and climate action in particular, would become a central consideration in the firm’s investment process going forward.
BlackRock’s sustainability focus has already led to an increase in engagement with companies in these issues. Last year, the company issued an investment stewardship report indicating a 47% increase in engagement on sustainability topics, reporting 3,020 engagements over the course of a year.
For the current year, the investment manager has identified five key focus areas for engagement, including Board Quality and Effectiveness, Climate and Natural Capital, Strategy, Purpose, and Financial Resilience, Incentives Aligned with Value Creation, and Company Impacts on People. The updated priorities were released along with new detailed commentaries including BlackRock Investment Stewardship’s (BIS) approach to engagement on natural capital and human rights.
According to the International Integrated Reporting Council, natural capital refers to “all renewable and non-renewable environmentalEnvironmental criteria consider how a company performs as a steward of nature. More stocks that provide goods and services that support the current and future prosperity of an organization.” Natural capital includes air, water, land, forests and minerals, and biodiversity and ecosystem health. In its commentary on natural capital engagement, BlackRock wrote:
“All companies rely on natural capital and/or impact it in some way. As the world transitions to a low-carbon economy, we ask companies to demonstrate how they are minimizing their negative impacts on, and ideally enhancing the stock of, the natural capital on which their long-term financial performance depends. As long-term investors, we encourage companies to disclose how they have adopted or plan to incorporate business practices consistent with the sustainable use and management of natural capital, including resources such as air, water, land, minerals and forests. We also seek to understand how companies promote biodiversity and ecosystem health and the responsible use of energy, as well as account for their broader impact on the communities in which they operate.”
On the human rights front, BlackRock wrote:
“Recognizing that exposure to human rights-related risks will vary by company and by industry, we ask that companies report on how they integrate human rights considerations into their operations and risk management processes, and demonstrate the steps they are taking to address these issues.”
BlackRock also stated that it is asking companies to implement processes to identify, manage, and prevent adverse human rights impacts that are material to their businesses, and to provide robust disclosures on these practices.
Explaining its approach to stewardship in its “Engagement Priorities for 2021” report, BlackRock said:
“Our conviction is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities and their shareholders. We use our voice as a shareholder to urge companies to focus on important issues, like climate change, the fair treatment of workers, and racial and gender equality, as we believe that leads to durable corporate profitability.”
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