With $7 trillion AUM, BlackRock is the world’s largest asset manager. It alone can move markets. This year’s letter makes clear that sustainability strategy is now a requirement for companies. BlackRock’s statement is direct: it will divest from companies that don’t have a sustainability plan and vote against directors and management who are not moving quickly enough.
BlackRock’s announcement is not an outlying position. The company’s decision was driven by client demand, particularly large pension and retirement plans, and a growing body of scientific and investment research. Its announcement also gives cover to other large asset managers and institutional investors to make similar demands on their portfolios. Similarly, Boston-based State Street Corporation, in its own announcement, has said three out of four companies have not made meaningful progress on ESG (environmental, social and governance) issues. The asset manager is putting them on notice, saying it is prepared to take voting action on companies in major stock indexes that are underperforming their peers on sustainability.
Furthermore, the World Economic Forum at Davos in January showed not only that sustainability is a front and center issue, but that investors need more information to help them evaluate risk and reward on the subject. The session “Making ESG reporting more science than art” addressed the simple idea that we lack a consistent set of standards for measuring how companies are doing on their ESG goals.
The Details
To protect investors, BlackRock is requiring its portfolio companies to: (1) disclose material sustainability issues through the SASB standard; (2) disclose climate risk through the TCFD framework; and, (3) have a long-range plan for improving sustainability and addressing climate risk including Board oversight. State Street Global Advisors said it will vote against ESG laggards in the S&P 500, FTSE 350, ASX 100, TOPIX 100, DAC 30 and CAC 40 indexes. It plans to expand the campaign to focus on companies that have lagged for multiple years in 2022. Both the BlackRock and State Street letters show they are assessing corporate sustainability as part of their long-term investment strategy.
Action to Take Now
By mentioning specific goals and timelines, we can expect BlackRock to continue its focus on these topics throughout 2020 and continue to make public announcements about portfolio divestments and investment stewardship through voting and engagement.
Companies need to move quickly to ensure current sustainability efforts are clearly communicated in line with the SASB standard and that the Board has oversight of ESG.
Develop an ESG Disclosure Strategy
Companies that are not embracing ESG transparency/disclosure are risking being dismissed by investors, potentially losing competitive advantage in their markets, and may even find it increasingly difficult in attracting and retaining clients and employees.
Giving stakeholders the information they’re looking for by leveraging the communication channels that they are already using is a good place to start. At the same time it is important to remember that different stakeholders with an interest in your company’s ESG information may have different needs and expectations.
More and more companies, especially those in the S&P 500, on their own accord include some aspect of sustainability in their financial filings, and many also include sustainability information in their proxy and 10-K.
Some companies are experimenting with interactive proxies. These digital, web-based experiences employ mixed media to present relevant information to shareholders. Interactive proxies are a comparatively inexpensive way to tell your corporate story, express ESG commitments, and promote shareholder engagement. Others are creating integrated reports, standalone corporate sustainability responsibility reports, stand-alone SASB report, and dedicated web pages on their web site and/or in their investor relations section.
Additional Reading
- BlackRock 2020 Annual Letter to Clients: Sustainability as BlackRock’s New Standard for Investing
- BlackRock 2020 Annual Letter to Portfolio Company CEOs: A Fundamental Reshaping of Finance
- New York Times: Climate Crisis Will Reshape Finance
- Bloomberg Green: State Street Tells Companies That ESG Moves Are No Longer Optional
- State Street Letter to Board Members: ESG No Longer an Option for Long-Term Strategy
- Forbes: Why Sustainability Was the Star at Davos 2020
ABOUT OUR PARTNERSHIP
Broadridge has partnered with Third Economy, a sustainable investment research and advisory firm, to provide ESG (environmental, social and governance) services to corporate issuers.
Chad Spitler is the Founder and CEO of Third Economy, a sustainable investment research and advisory firm. Chad was formerly a Partner at PJT CamberView, an advisory firm specializing in shareholder engagement particularly around complex or contested matters. He is most widely known for his role helping build what are now BlackRock’s Investment Stewardship and Sustainable Investing teams.