Investment giant BlackRock has released its Engagement Priorities for 2022, which will see the company focusing engagement efforts over the coming year on areas including climate, biodiversity and human rights, in addition to board quality and company strategy.
BlackRock Investment Stewardship’s (BIS) key engagement priority categories include Board Quality and Effectiveness; Strategy, Purpose, and Financial Resilience; Incentives Aligned with Value Creation; Climate and Natural Capital, and; Company Impacts on People.
While the primary engagement priority categories remain the same as last year’s, BlackRock has added several sustainability-related factors for companies to consider, including the impact of the global energy transition on the workforce, and the use of 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. factors in incentive pay.
BlackRock introduced the ‘Company Impacts on People’ category last year, taking a more expansive approach to companies’ impacts on areas such as human rights, and asking companies to implement and provide disclosure on processes to identify, manage, and prevent adverse human rights impacts that are material to their businesses. In this year’s report, BIS states that as part of its expectation for companies to “to demonstrate a robust approach to human capital management and provide shareholders with the necessary information to understand how their approach aligns with their stated strategy and business model,” it will also encourage companies to discuss how they are considering and addressing the interests of their workforce in relation to the global energy transition.
Other key human rights risks identified by BlackRock include poor working conditions, substandard wages, use of forced or child labor, community harm or displacement such as using contested land or infringing on indigenous peoples’ rights, and hostile or discriminatory workplaces, in addition to failure to manage privacy laws, standards or expectations.
On the compensation front, BlackRock does not explicitly promote the inclusion of 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. criteria in incentive pay calculations, though BIS does state that it believes “that accounting for the interests of key stakeholders in compensation policies recognizes the collective nature of long-term value creation,” and says that the board should determine whether to include sustainability-related criteria in incentive plans. In its supplement to the Engagement Priorities report, BlackRock provides more detail on its expectations for such inclusion, guiding companies to consider materiality, strategic alignment and appropriate measurement. BlackRock writes:
“BIS does not have a strong view on the use of sustainability-related performance criteria, but believes that where companies choose to include them, they are best aligned with shareholders’ interests when they: 1) address issues that are material to a company’s business model; 2) are aligned with long-term strategic priorities; and 3) incorporate the same rigor as with other financial or operational targets. It is helpful when companies integrating sustainability-related criteria in their incentive plans clearly explain the connection between what is being measured and rewarded and the company’s strategic priorities. Not doing so may leave companies vulnerable to reputational risks and/or undermine their sustainability efforts.”
In its climate priorities, BIS again encourages companies to report on the alignment of their business models with scenarios that keep global warming well below 2°C and moving toward net zero in 2050, and to help investors understand their approach through disclosures on scope 1 and 2 emissions. While last year’s report encouraged companies in carbon intensive industries to disclose scope 3 emissions, in this year’s report, BIS stated:
“At this stage, we view scope 3 emissions differently from scope 1 and 2, given methodological complexity, regulatory uncertainty, concerns about double-counting, and lack of direct control by companies. While we encourage companies to disclose their scope 3 emissions and targets where material to their business model, we do not consider such scope 3 disclosures and commitments essential to our support for directors.”
Regarding natural capital, BlackRock stated that it will focus on the key areas of biodiversity, deforestation and water, and asks companies to disclose detailed information on their management of natural capital risks and opportunities.
BlackRock said:
“Investors’ expectations of companies in relation to how they manage their dependencies and impacts on natural capital are growing, given the increasing fragility of the natural resources many depend on in their businesses. BIS will continue to engage with companies to better understand their approach to, and oversight of, the natural capital that underpins their long-term strategy.”
Click here to view BlackRock Investment Stewardship’s Engagement Priorities.
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