BlackRock has released updated global principles and voting guidelines for 2021.
Key changes include adjustments to its position on: shareholder proposals; climate risk; lobbying; diversity and inclusion and the incorporation of key stakeholder interests into company decision making.
BlackRock states that these adjustments are informed by:
- the expectation that companies will align their business models with the goal of limiting global warming to well below 2 degrees Celcius and reaching net zero emissions globally by 2050
- The positive impact sustainability-related factors have on the ability of companies to generate long term, risk-adjusted returns
- Blackrock's analysis of the impact voting behaviour has on corporate behaviour.
Key changes
Shareholder proposals
An effective means of driving change: BlackRock's analysis indicates that where shareholder E&S proposals receive significant support, companies tend to meet the request made in the proposal (even where the proposal fails to receive sufficient support to be carried). For example BlackRock found that:
- where shareholder ESG resolutions received 30% (or more) or votes in support, 75% of companies responded
- where the support for the proposal was between 30-50%, 67% of companies either fully or partially met the request made in the proposal
- where shareholder ESG proposals received 50% support, companies acted to meet the request in 94% of cases.
More likely to support shareholder ESG proposals: BlackRock flags that voting on shareholder proposals is likely to play an increasingly important role in its stewardship efforts around sustainability – including as a means of accelerating action on urgent sustainability issues. On this basis, BlackRock states that it will support shareholder proposals where:
- it agrees with the intent of the proposal; and
- the proposal addresses a material business risk that it considers management could 'do better' in managing or disclosing.
BlackRock flags that it may also support proposals where management is considered to be 'on track' but where voting in support of the proposal may 'accelerate' progress on an urgent issue. In this case, BlackRock adds that it will be more likely (than it has been previously) to support a shareholder proposal without waiting to first assess the effectiveness of engagement.
Already a change in voting behaviour: Since 1 July 2020, BlackRock states that it voted in support of 50% of the 22 shareholder ESG proposals put to a vote at shareholder meetings. BlackRock voted in support of 89% of shareholder 'E' proposals over the same period.
Climate risk
- In 2020, BlackRock called on companies to report in line with the TCFD recommendations and the SASB standards.
- From 2021, BlackRock expects companies to disclose a business plan aligned with the goal of limiting global warming to well below 2 degrees Celsius, consistent with achieving net zero global GHG emissions by 2050. BlackRock considers that this is not a 'new ask' as it is consistent with the TCFD recommendations which have been a topic of engagement for 'several years'.
- BlackRock will step up engagement on climate risk with the 1000 companies on its focus list and 'consider accelerated voting actions should the substance of companies’ climate-related commitments and disclosures not meet our expectations'.
Lobbying
- BlackRock will seek confirmation from companies (either 'through engagement' or disclosure) that their 'corporate political activities' are aligned with/consistent with their public stance/statements on material and strategic policy issues. In particular, BlackRock expects companies to monitor alignment with the 'major policy positions' of the trade associations to which they belong and to provide an explanation where inconsistencies are identified.
- This position is informed by the fact that the credibility of companies' commitments around climate risk management/mitigation may be undermined by affiliation/involvement with organisations that 'seek contradictory public policy aims'.
Diversity and inclusion
BlackRock is sharpening its expectations of board and workforce ethnic and gender diversity 'in the context of regional norms'.
In the UK context, BlackRock expects companies to adopt the recommendations of the Parker and Hampton-Alexander reviews.
In the US context, BlackRock expects companies to disclose:
- statistical information on the racial, ethnic and gender diversity of their workforces through the disclosure of Employer Information Report EEO-1 data; and
- he actions being taken to progress diversity, engagement and inclusion.
Key Stakeholder Interests
BlackRock expects companies to:
- report on how they have determined their key stakeholders and considered their interests in business decision making
- address 'adverse impacts' that could arise from business practices and to mitigate against any material risks going forward.
BlackRock states that it will initially focus in 2021 on 150 companies whose business practices 'may have resulted in adverse impacts or reflect insufficient management of "social" sustainability risks'.
BlackRock states that more information around its expectations will be included in updates to engagement priorities (which it plans to release early this year).
Further detail on BlackRock's engagement priorities to come
- In early 2021, BlackRock plans to release engagement priorities and supporting key performance indicators for the year.
- BlackRock will also release new commentaries outlining its perspective on companies' impact on natural capital ie the environment beyond climate.