Updated with correction
The companies with which BlackRock engaged over the past year are making progress on managing climate risk, but "still have a long way to go" when it comes workplace diversity, according the company's investment stewardship report for the 2020-2021 proxy season.
In 2021, BlackRock expanded its climate focus to more than 1,000 carbon-intensive public companies that represent 90% of the global scope 1 and 2 greenhouse gas emissions of clients' public equity holdings.Of the 244 companies it focused on in 2020 for insufficient progress, 65% made meaningful progress on energy transition planning. The asset manager also let it be known that it was prepared to vote against management if not enough progress occurred.
“We are encouraged by the level of awareness of the issue. It gives us confidence that voting against management can resonate and help companies,” said Michelle Edkins, BlackRock managing director in the investment stewardship team, in an interview.
"A lot of companies are really making an effort," Ms. Edkins said. For the heavier lift of addressing Scope 3 emissions that make up most of a company's total emissions, BlackRock is now asking to see business plans addressing net-zero targets, and encouraging them to keep working at it, Ms. Edkins said.
With governance a key focus, the report noted that "the last 12 months have posed significant challenges on boards and management teams." BlackRock opposed slightly more board director candidates, especially at companies not responsive to repeated engagement. Some directors were pushed off boards, as their responses — or lack of response — to the COVID-19 pandemic were assessed. "A lot of boards realized that some weren't pulling their weight. In difficult times it is often the opportune time to have the difficult conversations," she said.
BlackRock has been pushing companies for years to disclose their approach to board diversity, the report said. Insufficient board gender diversity was the top reason for voting against directors in the Americas, and the second overall reason for voting against directors. A growing focus on all types of diversity "is starting to have a noticeable impact on corporate boards," the report said.
When it comes to workplaces that are truly diverse, equitable and inclusive, "the past year highlighted that companies still have a long way to go," it said. Through its engagements with companies, BlackRock has learned more about how companies weigh employee experiences when making decisions, and in some case helped to accelerate efforts to advance gender and ethnic diversity, the report said.
Ms. Edkins' stewardship team also looked at how executive pay and incentives aligned with value creation in relation to employee experiences, and considered the reputational risk of making outsized payments to executives, especially if there were layoffs in response to the pandemic or the company received government support.
Overall, Ms. Edkins said, "most companies are responsive and the consensus formed organically amongst investors (is behind) some of these trends. The difference is the momentum. The pace of change is ticking up. Our expectations are ramping up."
