BlackRock Inc. voted against dozens of management recommendations during the 2020 shareholder proxy season after finding that those companies were not making enough progress on climate issues.
In a report released July 14, the world's largest asset manager said it had identified 244 companies including Exxon Mobil Corp., TransDigm Group Inc. and Fortum Oyj that "are making insufficient progress integrating climate risk into their business models or disclosures."
Nearly 80% of those companies were placed "on watch," a classification that BlackRock uses to tell those management teams that they have 12 to 18 months to meet its climate expectations or risk facing voting action next year. For the remaining 53 companies, BlackRock took several material actions against management including siding with shareholders on their proposals, voting against board members and raising governance concerns. The companies that BlackRock took voting action against during the 2020 proxy season came from a mix of industries, though energy dominated that cohort with 37 companies, according to the report. BlackRock also voted against proposals at seven utility companies, four industrials companies, four materials companies and one financial firm.
"A wide variety of investors, including BlackRock, have expressed their concerns about the investment risks of insufficient climate risk management," the company wrote. "In 2020, we took voting action against those companies where we found corporate leadership unresponsive to investors' concerns about climate risk or assessed their disclosures to be insufficient given the importance to investors of detailed information on climate risk and the transition to a low-carbon economy."
The report comes six months to the day after BlackRock Chairman and CEO Larry Fink warned the global business community that his company was taking a new approach to handling climate issues.
With $6.467 trillion in assets under management, BlackRock is one of the largest shareholders at most publicly traded companies in the U.S. As a result, BlackRock has faced pressure from climate activists for years to use its position to introduce sweeping changes at its portfolio companies. Fink's January letter sent a clear message that climate, as well as other environmental, social and governance issues, would be paramount in BlackRock's stewardship going forward.
"Climate change has become a defining factor in companies' long-term prospects," Fink wrote. "In the near future — and sooner than most anticipate — there will be a significant reallocation of capital."
In its July report, BlackRock said it identified an additional 110 companies representing market capitalization of more than $2.7 trillion in carbon-intensive sectors that it plans to begin engaging with in the second half of 2020.
The COVID-19 pandemic has brought issues beyond climate to the forefront of BlackRock's stewardship efforts. The asset management giant said it has been "focused on how the crisis has impacted companies' commitment to sustainable social practices — that is, the compensation, employee development and advancement, working conditions for employees and suppliers, local community outreach, and other measures companies put in place to build a diverse, engaged workforce and a strong corporate culture within supportive local communities."
BlackRock has subsequently voted against management at Tyson Foods Inc. on a shareholder proposal related to supply chain due diligence, voted against the reelection of a director at McKesson Corp. for the company's failure to take action over its role in the U.S. opioid crisis, and supported a shareholder proposal at Santander Consumer USA Holdings Inc. related to risks of racial discrimination in the company's lending business. The firm also supported a shareholder proposal calling for more disclosure around diversity and inclusion efforts at U.S. technology company Fortinet Inc., and voted against management at U.K. online grocery company Ocado Group PLC due to concerns that the board did not exercise appropriate oversight of executive compensation in the COVID-19 crisis, which BlackRock said could harm the retailer's relationship with consumers.
"We believe issues that could threaten a company's license to operate will become even more acute in the wake of the COVID-19 crisis," BlackRock wrote in its report.