A $7 trillion climate change warning to the stock market from its biggest shareholder

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An abandoned oil rig in the U.K. during Covid-19. “We’ve been talking about this for 20 years and some of the changes we saw this week were unlike anything we’ve seen before,” said Mindy Lubber, CEO and president of sustainability nonprofit Ceres, speaking about action from investors on climate change. Jason Alden | Bloomberg via Getty Images

So is investment pressure on corporations. In the past week, Exxon Mobil was targeted by activist investors, as well as CalSTRS, one of the nation’s largest pension funds. «We’ve been talking about this for 20 years and some of the changes we saw this week were unlike anything we’ve seen before,» said Mindy Lubber, CEO and president of Ceres, a sustainability nonprofit that works with investors on climate change. Ceres announced this week a consortium of investors managing $9 trillion in assets that have committed to investing along net zero carbon goals.

While it is not part of the new net zero investor coalition, with $7 trillion in assets on its own, BlackRock’s decisions influence other investors and corporations. «BlackRock owns every company in the market,» Lubber said. A BlackRock spokesman downplayed the significance of its new report in a call with CNBC earlier this week, but impact investing experts, who have been critical of the company in recent years for a weak voting record on shareholder resolutions, say it is significant and should lead to more action that mirrors the strong words of CEO Larry Fink on climate.

Shareholder votes work

When it comes to support for shareholder resolutions on climate, BlackRock and Vanguard, the two largest fund companies, have finished near the bottom of the group of top 50 asset managers in recent years and that has led climate investing experts to lose faith in them as investment stewards focused on climate. BlackRock concluded that the data shows the votes work to influence corporate management. BlackRock said in the report that for resolutions that received at least 30% of shareholder support, the evidence suggests it does result in management meeting the shareholder requests for change, even if not fully, at a majority of companies . «Our analysis finds that companies tend to meet the request made in a shareholder proposal if it receives significant support, regardless of whether or not the proposal passes,» BlackRock concluded.

While that may seem obvious, proxy voting experts say it is important because BlackRock has never explicitly offered this conclusion before. Its stance in the past has been to typically focus on its own individual engagements with companies as the best method for moving companies. Before those July votes, BlackRock also took a more narrow view of shareholder resolutions it might support. «It looks like they are saying they will be voting on climate resolutions to a huge extent rather than a modest extent.

$7 trillion provides a loud voice and influence that other asset owners, and companies in its portfolios, will follow».

BlackRock doubters remain

Given disillusionment among impact investors in recent years when it comes to BlackRock and Vanguard voting records, doubts remain. «They have a big stick and this report makes the case for the power of voting,» says Andy Behar, CEO of shareholder advocacy nonprofit As You Sow. As You Sow has targeted BlackRock at its own annual meeting in the past for its failure to support more resolutions. Behar delivered a speech from the floor of the BlackRock meeting last year pointing to what he sees as a disconnect between BlackRock’s words and actions, for «using its big stick like a wet noodle» Behar says, and that means he remains skeptical until he sees the results from the upcoming annual meeting season.

BlackRock has a large staff working on direct engagement with companies, and that will continue. In fact, the new report says it will more than double the number of companies with which it engages on climate issues to over 1,000. BlackRock announced a list last year of roughly 200 companies that it put on «watch» for climate inaction. «That’s not an insignificant term to use,» Smith said, and he added that engagement remains a relevant tool for a company the size of BlackRock.

The new direction and attitude from BlackRock on voting is something investors will monitor carefully to make sure it is being institutionalized. «We’ve had resolutions to BlackRock on this topic and each time they put some new steps forward but the result in proxy season was they didn’t move, they voted for a minority of resolutions,» Smith said. In fact, Cook had thought that one of BlackRock’s changes to the wording of its 2020 guidelines, about expecting companies to issue reports aligned with carbon accounting standards known as TCFD or SAS, signaled a stronger inclination to support climate risk disclosure resolutions.

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Source: Eric Rosenbaum | CNBC

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