It began gently almost three years ago, with Fink urging several corporate CEOs in a letter to make “a positive contribution to society” beyond generating profit for shareholders, to “serve a social purpose.” The initiatives pressed most urgently addressed climate change risk and disclosure, and diversity initiatives.
The tone has gone from pleadings to threats, as outlined in BlackRock’s “2021 Stewardship Expectations,” issued a couple of weeks ago in advance of corporate annual meetings that will be held in the coming months. As reported by investment equity law firm Ropes & Gray, BlackRock has intensified its demands in pursuit of compliance with its priorities.
Among BlackRock’s plans:
- “Broadening the universe of focus companies – from 440 to more than 1,000 – that it believes have significant physical and/or transition climate-related risk in their business”
- “Companies in the expanded focus universe are expected to disclose a business plan aligned with the goal of limiting global warming to well below 2°C, consistent with achieving net zero global greenhouse gas emissions by 2050”
- “Will step up its engagement efforts with the focus companies and consider accelerated voting actions if the substance of companies’ climate-related commitments and disclosures does not meet its expectations”
- “Will hold members of the relevant committee, or the most senior non-executive director, accountable for inadequate disclosures and the business practices underlying them”
- “Asking companies to disclose the diversity of their workforce, including demographics such as race, gender and ethnicity”
- “Requesting that companies disclose the actions they are taking to advance diversity, equity and inclusion”
- “Raise its expectations that companies take action to advance equity of opportunity within their workforce”
- “Expect U.S. boards to have, in addition to other aspects of diversity, at least two women directors”
- “Ask U.S. companies to disclose, among other things, data on the race and ethnicity of their board members”
- “Increase voting action against boards not exhibiting diversity in 2022”
- “Raise its expectations that companies make relevant [Sustainability Accounting Standards Board]-aligned disclosures”
- “Support [shareholder] proposals that address material environmental risks that a company could be managing to greater effect”
- “Support [shareholder] proposals on social topics where it believes there is a material risk to the company that has not yet been addressed or disclosed”
As Ropes & Gray reported, some of the requirements by BlackRock are not new. However, the expanded universe of companies, and the tactics employed to enforce its demands, are new. It will vote to remove non-compliant directors from boards, add heft to left-wing activist shareholder proposals, and generally pressure leadership based on its political agenda items, whether it’s in the best interest of the company or not.
“Where we believe companies are not moving with sufficient speed and urgency, our most frequent course of action will be to hold directors accountable by voting against their re-election,” BlackRock said in its “Expectations” missive. “The effectiveness of voting against directors is well-documented.”
With assets approaching $8 trillion that it manages, BlackRock will wield enormous influence.
“For the largest investor firm in the world to be saber rattling, that will have an impact,” said Tim Smith, director of ESG shareowner engagement at Boston Trust Walden, to CNBC. “Unless a company is stupid, when the largest investor says here is what we expect of you, and by the way rest of world expects this too, a lot are going to start responding. They are saying the situation has become more urgent and therefore they need to see demonstrable action.”
While BlackRock renewed and escalated its moralizing on climate and diversity, it had nothing to say in its “Stewardship Expectations” about corporate relationships or interactions with the human rights violators in communist China.
In May, National Legal and Policy Center President Peter Flaherty wrote to Fink, requesting that BlackRock divest its funds from 137 Chinese companies that are listed on American stock exchanges, noting his inconsistencies in pursuit of investments in the communist nation while at the same time prioritizing environmental, social (justice), and governance (ESG) goals.
“You recently wrote a letter to BlackRock shareholders about the pandemic and the future of BlackRock. Not one of your 5,000-plus words was critical of China for its role in the worldwide coronavirus nightmare…,” Flaherty wrote earlier this year. “Your letter contains the word ‘transparency’ nine times, yet the Chinese companies in which you invest your customer’s money are opaque… Would not your customers — and our nation — be better served by investing in non-Chinese companies in regulated and transparent markets?”
BlackRock and Fink are throwing their weight around, intimidating corporations to meet their progressive demands – or else. Only China is big enough to make these bullies stand down.