BlackRock, the world’s biggest asset manager, said on Tuesday that it would vote against directors at companies who are not moving fast enough to address climate-related risks as part of a new “heightened scrutiny model” in its portfolios and would flag investments for sale if those risks threaten client returns.
With US$8.7 trillion in assets under management, BlackRock also said it would incorporate climate considerations into its capital markets assumptions and introduce investment products tied to temperature alignment goals, such as “net zero” carbon emissions.
It is the latest step by BlackRock to use its dominance to push for change at portfolio companies and comes as investment managers and lenders are facing greater pressure to address climate change and social issues, particularly in light of the coronavirus pandemic.
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“I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives,” Larry Fink, BlackRock’s chairman and CEO, wrote in his annual letter to global CEOs. “It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.”
The new push by BlackRock on climate comes as governments in Asia adopted aggressive goals to address emissions last year amid the pandemic.
In September, Chinese President Xi Jinping said in a video address to the United Nations General Assembly that the country would scale up its voluntary emissions targets under the Paris climate accords, hitting peak emissions before 2030 and achieving carbon neutrality before 2060.
Japan and Korea also have announced their intentions to be carbon neutral a decade earlier by 2050. In November, Chief Executive Carrie Lam Cheng Yuet-ngor pledged Hong Kong, which hopes to become a green financing hub, would be carbon neutral by 2050 as part of her annual policy address.
Investor coalition Climate Action 100+, which includes BlackRock as a member, said Asian companies are more readily engaging with investors on climate change and making their own commitments to reduce their emissions.
HSBC, for example, pledged in October to become “net zero” in terms of carbon emissions by 2050 and said it would provide up to US$1 trillion in financing and investment in the next decade to help clients achieve that goal.
As a large provider of index funds, BlackRock is generally limited in its ability to sell shares in companies they do not agree with if that company remains in a benchmark index. However, BlackRock, Vanguard Group and other providers of passive investment products are using shareholding voting and direct engagement to try to change corporate policies.
Last year, BlackRock said it focused on a universe of 440 carbon-intensive companies, voting against 55 directors and putting 191 “on watch” – meaning they would vote against them this year if they did not demonstrate progress. BlackRock expects to expand that universe to more than 1,000 companies this year.
There has been a “tectonic shift” in economies and financial markets related to climate change in the past year, according to Geraldine Buckingham, head of BlackRock’s Asia-Pacific business.
“We have become more impatient in using our votes around issues relating to climate. We believe there’s a real urgency in addressing these issues,” Buckingham said. “If we don’t believe a company has a plan or they’re not implementing that plan effectively, we will vote against management, against the board to ensure the change we think is needed does take place.”
BlackRock also said on Tuesday it would introduce more tools, normally set aside for large investors, to its clients to better tailor their portfolios with their values.
“Customisation allows investors to express their preferences not only around net zero, but also to embed values into their portfolios more deeply – social, religious, or otherwise,” the company said in a separate letter to clients.
Given BlackRock’s size, Fink’s prior letters have previously caused a stir among C-suite executives, with some corporate leaders spurred to talk about their company’s “purpose” and others grousing about the tone of those letters. The company also has been criticised by environmental groups in the past for not using its voting power as aggressively as some think it should.
“The realities of climate change don’t feel hypothetical. They are happening now,” Buckingham said.
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