BlackRock Resumes Stewardship Talks After Reviewing New ESG Guidance

BlackRock, the world's largest asset manager, has resumed its stewardship talks with companies following a review of its new ESG (Environmental, Social, and Governance) guidance. The firm, which manages over $10 trillion in assets, has updated its approach to engagement, voting, and climate-related disclosures to better align with the expectations of its clients and the broader investment community.

BlackRock's revised ESG guidance, released in February 2022, has significantly influenced its engagement strategies with companies, particularly those in carbon-intensive sectors. The firm's 2022 Engagement Priorities report outlines its focus areas for the coming year, which include climate, biodiversity, and human rights, in addition to board quality and company strategy. Here's how the revised guidance impacts BlackRock's engagement strategies:

1. Climate and Natural Capital: BlackRock encourages companies to report on the alignment of their business models with scenarios that keep global warming well below 2°C and moving toward net zero in 2050. The firm expects companies to disclose scope 1 and 2 emissions and, where material, scope 3 emissions. BlackRock will engage with companies to better understand their approach to and oversight of natural capital that underpins their long-term strategy, focusing on key areas such as biodiversity, deforestation, and water.
2. Board Quality and Effectiveness: BlackRock expects boards to have a clear understanding of how executive leadership instills the company's strategy and purpose into day-to-day operations and ensures that corporate culture is experienced as intended across the workforce and key stakeholders. The firm will engage with boards to discuss their approach to ESG issues, including climate change, diversity, and executive compensation.
3. Incentives Aligned with Value Creation: BlackRock believes that accounting for the interests of key stakeholders in compensation policies recognizes the collective nature of long-term value creation. The firm encourages companies to consider material ESG factors in incentive pay calculations, ensuring alignment with long-term strategic priorities and appropriate measurement.
4. Company Impacts on People: BlackRock expects companies to demonstrate a robust approach to human capital management and provide shareholders with necessary information to understand how their approach aligns with their stated strategy and business model. The firm will engage with companies to discuss their approach to human rights, workforce impacts of the global energy transition, and other human capital management issues.

In its 2022 Letter to CEOs, BlackRock CEO Larry Fink emphasized the importance of companies playing a role in decarbonizing the global economy and navigating the energy transition effectively. The firm's revised ESG guidance reflects its commitment to engaging with companies, including those in carbon-intensive sectors, to promote sustainable practices and long-term value creation.

Victoria Gaytan, Vice President at BlackRock Investment Stewardship, discussed the firm's approach to engagement in an episode of the ESG Insider podcast. She highlighted BlackRock's focus on boards' understanding of executive leadership's strategy and purpose, as well as their oversight of ESG issues, including climate change, diversity, and executive compensation. Gaytan also emphasized the importance of companies disclosing their approach to natural capital and human rights, as well as their alignment with a net-zero pathway.

In summary, BlackRock's revised ESG guidance has led the firm to prioritize engagement with companies in carbon-intensive sectors on issues such as climate change, natural capital, board quality, incentives, and human rights. By focusing on these areas, BlackRock aims to promote sustainable practices and long-term value creation among its investee companies.