“BlackRock has been an easy target for critics because it’s the biggest asset manager in the world, its CEO has been very vocal and its voting record, especially on climate resolutions, is not the best,” said Amandeep Shihn, director of manager research at advisory firm Willis Towers Watson in London. “But now you are hearing about climate change from the CEO and it has got to cascade down. It’ll take some time to evidence any change, but we are hopeful.”
This proxy season in the U.S. is set to be a crucial test of BlackRock's commitment to voting against leaders of companies that fail to reveal enough about how they measure up on sustainability. It’s the busiest period for BlackRock’s stewardship team, a troupe of ex-lawyers, consultants and corporate-governance personnel. Over the next several months, each staffer will speak to as many as 10 companies a day, according to people familiar with the schedule. After the proxy season concludes in June, discussions with managements will continue focused on larger strategic issues such as a company’s carbon footprint and environmental record.
Jean-Philippe Renaut, chief executive officer of shareholder engagement firm AEQuo in Montreal, said an experienced professional can maintain substantive dialogue with about 30 or even 40 companies at any given time. Any more than that and the engagements are less successful, he said.
Towers Watson’s Shihn said all stewardship teams appear understaffed for the task and that the largest asset managers can support teams 10 times larger by charging a fraction more for their funds. He also said the biggest firms have been slow to embrace stewardship because it’s seen as “a cost center without a direct link to revenues.”
Because BlackRock’s biggest business is selling funds that track benchmark indexes, the company is missing a crucial weapon: Managers of these funds can’t sell scofflaws’ shares at the risk of diverging from a benchmark’s performance. Fink has said BlackRock is a “permanent” shareholder.
BlackRock also has a $1.8 trillion active management business, which it said will be "fully ESG integrated” by the end of the year, meaning its portfolio managers will be accountable for managing their exposure to environmental, social and governance risks. BlackRock also said its investment stewardship team works closely with the active business and speaks regularly to the equity and credit analysts and portfolio managers to "exchange insights on material ESG topics."
The stewardship group is managed by New York-based Michelle Edkins, a New Zealander who has worked in corporate-governance roles for more than two decades, first with Hermes Pensions Management before joining BlackRock in 2009. While the unit initially focused on corporate governance, the mandate was expanded to cover a host of ESG concerns. Climate issues have rapidly risen up the agenda.
And even as the firm has ramped up its internal efforts, shareholders and society at large have placed even greater focus on its role as one of the largest owners of most companies. Gun-control activists have singled out BlackRock for criticism.
BlackRock says there have been successes. For example, the firm said its requests for companies in the Russell 1000 Index to increase boardroom diversity contributed to the addition of at least one woman to the boards of 122 companies, while a Korean petrochemical company implemented a long-term strategy of internal controls and trading policies after BlackRock’s engagement.
In the 12 months ended June 30, BlackRock said it engaged with 256 companies on climate and environmental issues. It only voted in favor of four shareholder proposals asking the companies to analyze emissions and their alignment with scenarios that keep the average global temperature increase to within 2 degrees Celsius.