BlackRock can, however, potentially change the companies themselves. Investors in these funds typically give the investment managers the ability to act as proxies in votes on the company’s governance. These include things like approving members of the company board or changing the way the company does business. Due to the fact that major investors like BlackRock own a large number of shares, changes in its voting patterns can make a substantial difference.
What it plans on doing
With a better sense of what the company can do, we can turn to what it plans on doing. In the open letters, the company’s management lays out its case for focusing on sustainability.
“BlackRock does not see itself as a passive observer in the low-carbon transition,” CEO Larry Fink argues. “We believe we have a significant responsibility—as a provider of index funds, as a fiduciary, and as a member of society—to play a constructive role in the transition.” And, just as significantly, Fink says, customers have consistently asked for it to act on climate and sustainability issues.
Fink goes on to elaborate how sustainability fits with the company’s fiduciary duty. He argues that “Climate change has become a defining factor in companies’ long-term prospects.” As a result, investors are starting to “reassess core assumptions about modern finance,” which will mean that “in the near future—and sooner than most anticipate—there will be a significant reallocation of capital.” Because of this impending reallocation, firms that have a focus on sustainability provide the lowest risk, and best returns for investment, Fink argues. This provides the rationale for changing investment policies as protecting the interests of its investors.
BlackRock’s CEO calls for companies to use recently developed standards to report their climate- and sustainability-related risks, as well as how they plan to operate within the limits posed by the Paris Climate Agreement. He goes on to indicate that if the companies fail to do so, BlackRock will assume they’re not managing risks properly. He then drops the big threat: “we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
https://arstechnica.com/science/2020/01/major-investment-firm-to-prioritize-sustainability-back-off-coal/
