BlackRock has published a report on how it has ramped up its climate-related engagement with companies in carbon-intensive sectors, six months after outlining its fresh commitment to ESG within its investment framework
In its first report on BlackRock Investment Stewardship’s approach to sustainability, the world’s biggest asset manager for the first time published detailed information on its engagement and voting practices in 2020 so far.
In January, the $7 trillion AUM manager made a commitment to sustainability within its investment practices and vowed to overhaul its existing strategy and implement significant changes to drive ESG integration across its investments.
According to the report, the group identified 244 companies within carbon-intensive sectors making “insufficient progress” integrating climate risks into their business models or disclosures (as of July 8), and has taken voting action against 53 of those, or 22%.
This list is made up primarily of energy companies (37 with a market cap of $408 billion, including ExxonMobil), but also includes utilities (seven, including Alette Inc.), industrials (four, including Deutsche Lufthansa), materials (four, including Evraz) and one financials company. The full list with case studies is published in the report.
“We have put the remaining 191 companies ‘on watch’,” BlackRock said. “Those that do not make significant progress risk voting action against management in 2021.”
The companies on the watch list have been explicitly asked to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) standards.
BlackRock added it has also identified a number of companies outside the carbon-intensive sectors that present “high sustainability-related risk for heightened engagement over the next year.”
“In our assessment, many of these companies are making progress to provide sufficient disclosures by year-end 2020. However, other companies have yet to fully acknowledge the risks and opportunities posed by the transition to a low-carbon economy.”
Meanwhile, BlackRock has also identified 110 companies across carbon-intensive sectors to initiate engagement with in the second half of the year. Together, they represent over $2.7 trillion in market cap, nearly 1.7 billion of CO2 emissions and over $132 billion of client exposure.
“These are companies where we have had limited or no climate-related conversations to date but have potentially engaged on a number of other governance-related topics,” BlackRock said.
These companies tend to either be based in emerging markets or are part of the “next wave in tackling climate change, such as financial services,” the group added.
“While we have already had conversations with a number of banks, we plan to increase these engagements over the next year,” it said.
In emerging markets, BlackRock said it has written letters to CEOs of companies representing 90% of the Asia ex-Japan market in the first half of 2020 to “bring our expectations of TCFD-aligned disclosures to their personal attention.”
However, BlackRock added that its stewardship efforts have not been focused on climate issues alone and include other environmental issues, such as sustainable practices in agribusiness, as well as human capital management and diversity inclusion.
“The COVID-19 crisis, and more recently the protests surrounding racial injustice in the U.S. and elsewhere, have underscored the importance of these issues and a company’s commitment to serving all of its stakeholders,” the report said.
Since the beginning of the pandemic, BlackRock has engaged with more than 380 companies across all sectors and 29 countries to “understand how they are balancing short-term pressures created by COVID-19 with efforts to oversee long-term material financial and operational performance.”
“In our recent engagements, we have found many companies that are finding ways to strengthen their commitment to employees and other stakeholders during the pandemic, from establishing employee relief funds to providing meals to local hospitals,” the firm said.
However, it said it has taken voting action against companies that are failing on these issues, including Tyson Foods for unsatisfactory disclosures and practices around sustainable working conditions and management at Ocado for lack of appropriate oversight of executive compensation.
The company said it intends to refresh its expectations for human capital management and how companies pursue sustainable businesses practices in the second half of 2020, as well as continuing to focus on diversity in the boardroom.
Overall, as of June 30, BlackRock estimates it has increased its number of engagements by 47% since last year to 3,020. Environmental engagements have nearly tripled from 316 to 1,230, while social and governance engagements have increased 146% and 47%, respectively.
BlackRock’s efforts to improve its transparency mean it will now publish quarterly global stewardship reports, global engagement activities and voting disclosures, as well as vote bulletins, position papers and general enhanced client reporting.