BlackRock Inc. plans to turn up the pressure on companies to address everything from climate risk to board diversity in 2021.
With $7.808 trillion in assets under management at its back, the world's largest investor will engage with more than 1,000 companies on climate-related risks in their businesses, push companies in the U.S. to disclose the ethnicities of their board members and press for political activity disclosures from companies, according to BlackRock's 2021 stewardship report.
"The 2021 shareholder meeting season will see boards and management scrutinized over their response to the COVID-19 pandemic. In addition to that near-term challenge, investors and others will be looking to see how companies are rebuilding their businesses for long-term sustainability and value creation," BlackRock wrote. "We hope that our revised principles and voting guidelines provide a clear indication to companies of our expectations as a long-term shareholder on behalf of our clients."
Released Dec. 10, the report comes almost a year after BlackRock Chairman and CEO Larry Fink set off a worldwide debate about companies' responsibilities to address the climate crisis, which Fink said will spark a "fundamental reshaping of finance."
The company's 2021 stewardship strategy involves more than doubling the number of carbon-intensive companies it engages with from the 440 it was focused on at midyear 2020. In 2020, BlackRock said it had voted against 55 directors at the 440 companies, while putting another 191 directors under review for potential down-votes in 2021 unless they had demonstrated enough progress in managing and reporting climate-related risks.
The new list of more than 1,000 companies will face calls from BlackRock to outline a business plan that aligns with "the goal of limiting global warming to well below 2 degrees Celsius, consistent with achieving net zero global [greenhouse gas] emissions by 2050," according to the report. BlackRock also plans to release "a more holistic commentary" in January 2021 on how it is approaching companies' impacts to the environment beyond climate.
Ben Cushing, a senior campaign representative for the Sierra Club, said in a statement that BlackRock's new stewardship policy finally shows acknowledgment from the investment company that "behind-the-scenes engagement with polluters is insufficient to drive climate action, and needs to be paired with real consequences by using its enormous voting power."
The asset manager has long faced criticism from environmental, social and governance advocates for not voting more aggressively to support shareholder proposals. BlackRock wrote in its report that it is "evolving" its thinking on shareholder proposals so that it will "support shareholder proposals that are reasonable and not unduly constraining to management."
BlackRock's own research now shows that shareholder proposals can be successful in changing a company's thinking on certain issues, even if the proposal did not pass. About two-thirds of companies that faced shareholder proposals with 30% to 50% support ended up either fully or partially satisfying the proposal's framework. Shareholder proposals with more than 50% of support led 94% of companies to fully comply.
Voting against directors related to what BlackRock views as inadequate gender diversity on a company's board has also proven to be a success. Almost 41% of the companies where BlackRock voted against a director for diversity reasons in 2019 improved the diversity of their boards the following year, BlackRock said.
The asset manager plans to take a harder look at board diversity in 2021, "with an eye toward more voting action" in 2022. BlackRock will also begin examining the tenure of directors as it looks to balance out established and new voices in boardrooms. And in developed Asian markets, BlackRock is rolling out new expectations for a minimum level of gender for boards.