May 22nd, 2022
Larry Fink (CEO of BlackRock, with 10tr$ assets under management) has been an influential voice in corporate debates about capitalism in recent years. His 2018 letter (“Sense of Purpose”) telling chief executives they should articulate what wider social and environmental purpose their companies serve beyond generating returns for shareholders, is credited with shifting boardrooms from a focus on “shareholder primacy” to a new model focused on a wider range of stakeholders and sustainable long-term performance, with a special focus on the environment.
As far as Environment, Energy Transition and Climate Action are concerned, the company has been very clear in its positioning, illustrated in Larry Fink’s annual letters to chief executives, in which he warned climate change represented a risk to markets unlike any previous crisis.
The group voted in favour of 47 percent of shareholder proposals on the subject last year and backed activist hedge fund Engine No. 1’s successful effort to put directors on the board of ExxonMobil, a campaign that urged the oil major to confront climate change more aggressively.
“Climate change is different. Even if only a fraction of the projected impacts are realised, this is a much more structural, long-term crisis,”, “Our investment conviction is that sustainability and climate-integrated portfolios can provide better risk-adjusted returns to investors,”, “Climate change has become a defining factor in companies’ long-term prospects,” are some of the statements included in those letters. Better summarised in this blunt statement in the 2022 letter, issued in January:
“We focus on sustainability not because we're environmentalists, but because we are capitalists”.
This week the Company issued a statement titled “2022 climate related shareholder proposals more prescriptive than 2021 Investment Stewardship”. Ahead of the peak 2022 shareholder meeting season, BlackRock has warned that it will not support most shareholder resolutions on climate change this year because they have become too extreme or too prescriptive. They justify it specially with the Russia’s invasion of Ukraine “requiring more short-term investment in traditional fuel production to boost energy security”. The group said it was particularly wary of proposals to stop financing fossil fuel companies, forcing them to decommission assets or set absolute targets for companies on reducing emissions in their supply chains and their customers.
They write “in the context of voting on shareholder proposals regarding climate-related risk, companies face particular challenges in the near term, given under-investment in both traditional and renewable energy, exacerbated by current geopolitical tensions (…). This set of dynamics will at least in the short and medium-term drive a need for companies that invest in both traditional and renewable sources of energy, and we believe the companies that do that effectively will produce attractive returns for our clients”. And conclude “The nature of certain shareholder proposals coming to a vote in 2022 means we are likely to support proportionately fewer this proxy season than in 2021, as we do not consider them to be consistent with our clients’ long term financial interests”.
Is this an unexpected development in BlackRock’s positioning on Climate Change and Environment? Or just them being consistent with their basic Purpose: focus on their client’s long-term financial interests? If the latter is true, does it make sense to believe that their long-term financial interests change just because there is an episodic (though profound) “energy disruption”? Food for thought.
Nuno Moreira da Cruz
Center for Responsible Business and Leadership