Investment giant BlackRock unveiled its new “Climate and Decarbonization Stewardship Guidelines,” setting out separate engagement and voting policies for investors specifically focused on the low carbon transition.
The launch of the new policy may help BlackRock to navigate the complex pressures facing asset managers to meet growing demand to account for climate-related risk and opportunities in clients’ investment portfolios, while ensuring that their focus as a fiduciary remains on financial outcomes.
BlackRock, as the largest global investment management company, and a leading voice in the investment community on climate and energy transition-related investment themes, has found itself at the center of a vocal anti-ESG movement, particularly by Republican politicians in the U.S., who have accused the firm of following a socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. agenda allegedly at the expense of shareholder returns, and of “boycotting” and working to harm energy companies.
In a series of recent anti-ESG campaigns targeting the firm, for example, suits filed against BlackRock by lawmakers in Mississippi and Tennessee alleged that the firm misrepresented the extent to which it uses 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. considerations in its investment strategies, including in those that do not have a stated sustainability focus, citing BlackRock’s participation in groups such as the Net Zero Asset Managers (NZAM) initiative and Climate Action 100+ (CA100+), which include commitments by participants to use all assets under management to achieve climate-related goals and to direct engagement activities.
As part of its efforts to address these pressures, BlackRock recently shifted its participation in Climate Action 100+ to its international unit, citing a new strategy by CA100+ that would require signatories to commit to use client assets to pursue emissions reductions in portfolio companies. In a letter to CA100+ published on the asset manager’s website, BlackRock said that “the money BlackRock manages is not our own—it belongs to our clients—and BlackRock is committed to providing clients around the world with choices to support their unique and varied investment objectives.” BlackRock’s website also carries a ‘2030 net zero statement,’ which states that “our role is to help them navigate investment risks and opportunities, not to engineer a specific decarbonization outcome in the real economy.”
While facing anti-ESG pressures, however, BlackRock also recently noted that a survey it conducted indicated that most of its global institutional clients plan to increase their allocations to climate transition strategies over the next three years, with nearly half citing it as their top priority. Earlier this year in his annual letter to investors, BlackRock Chairman and CEO Larry Fink said that the firm views the global transition to low carbon energy sources as one of the most powerful drivers of capital market opportunity and risk, and described the energy transition as a “mega force.”
To help address these issues, BlackRock Investment Stewardship (BIS) detailed in its new policy that its new climate and decarbonization stewardship guidelines will be applied to funds for clients who explicitly direct the firm to invest their assets with decarbonization investment objectives. For all other clients, BIS said that it will apply its benchmark policy, while noting that this would still include “consideration of climate-related risks and opportunities in a company’s business model, where material to the company’s ability to deliver long-term financial returns.”
While the benchmark policy exclusively focuses on financial considerations, the new policy will also consider the alignment of companies’ business models and strategies with opportunities related to the low carbon transition, as well as with the Paris Agreement goal to limit average temperature rise to 1.5°C above pre-industrial levels.
The new decarbonization policy will prioritize its voting and engagement activities on sectors and companies described by BlackRock as “critical to the transition to a low-carbon economy,” including those with carbon intensive business models and facing outsized transition impacts, as well as companies providing products and services contributing to real-world decarbonization.
Key features of the new policy include an expectation for companies to disclose their aim to participate in the low carbon transition, that may include disclosure on a 1.5°C-aligned low carbon strategy, reporting in line with the IFRS S1 and IFRS S2 sustainability and climate-related standards, and science-based reduction targets for Scope 1 and Scope 2 emissions, and material Scope 3 emissions, in addition to information on how companies work with their value chains to accelerate GHG emissions reduction intensity.
In assessing boards and directors, the new policy will look to ensure that the board has clear oversight responsibility for climate and low-carbon transition-related risks and opportunities in the business model, that management has established a robust low-carbon transition framework and long-term strategy, and that companies’ enterprise risk management processes and reporting have integrated climate and low-carbon transition risks.
The policy also seeks to ensure that companies have set 1.5°C-aligned scope 1 and 2 emissions reduction targets that are science-based and independently verified where possible.
While BlackRock has supported fewer climate-related shareholder proposals over the past few years, often describing the proposals as overly prescriptive, under the new policy, BlackRock said that it may support proposals that ask companies to publish business plans and disclosures consistent with the 1.5°C ambition, to align Scope 1 and 3 emissions targets to net zero by 2050, disclose material Scope 3 emissions, and to improve disclosures on aligning climate-related lobbying with strategic policy positions. The firm reiterated, however, that it will not support proposals that seek to direct management strategy.
BlackRock published an initial list of more than 80 European-domiciled funds that will apply the new policy, with more US and Asian funds to follow, according to media reports. The firm also said that clients in separately managed accounts may select to have the new policy applied to their holdings.
Click here to access BlackRock’s new climate and decarbonization stewardship guidelines.