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Blackrock boss works to claw back firm’s climate credibility

Blackrock faces a tough task turning around its reputation for climate inaction, as chief executive Larry Fink promises the asset manager will take a tougher line with companies over climate change.

The asset manager has been slammed over the last year for its communications on climate change being out of step with its track record of voting backing management over climate action.

But Fink pledged to turn that track record around in his annual letter to clients this week.

Blackrock will now require companies to provide a plan for operating within the Paris Agreement’s goal to limit global warming to two degrees, he said.

“We will be increasingly disposed to vote against management when companies have not made sufficient progress,” he said.

Blackrock has joined Climate Action 100+ to engage collectively with other fund managers on climate change.

The firm is also stepping up its disclosure on votes. It will reveal its vote “promptly” on high-profile issues, with an explanation of its position, and will move from annual to quarterly voting disclosure.

Blackrock slammed for greenwashing

Blackrock has faced backlash over the last year for the discrepancy between its public statements on climate change and its track record of voting in favour of management over shareholder resolutions on climate action.

In September, along with Vanguard, it was accused of undermining shareholder efforts to hold oil majors and energy companies to account on climate change and choosing to “to shield management from accountability”.

At the time, an analysis of 41 resolutions viewed as climate critical revealed Blackrock had only supported five while Vanguard had supported just four.

Sixteen of the proposals would have passed if the fund giants had voted in favour of them.

In December, a group of nuns accused Blackrock of greenwashing and filed a shareholder resolution requesting the US asset management giant to conduct a review of its voting practices.

More action needed to shed its ‘greenwashing’ reputation

The asset manager’s track record on climate inaction prompted a cautious response from its critics.

Helm Godfrey head of responsible investment John Ditchfield described it as an “impressive statement of intent” but said he would now be looking for evidence of practical action to align portfolios with the Paris Agreement.

“Blackrock have historically not supported the necessary action to reduce emissions so there’s always a concern that this is more ‘greenwashing’ by one of the world’s largest investors,” Ditchfield said.

Helm Godfrey had previously highlighted that Fink told investors in 2019 that sustainability would be a focus for the US funds giant but then proceeded to vote against climate action resolutions.

Shareaction campaign manager Jeanne Martin also pointed to Blackrock’s track record as a cause for concern.

“While we welcome its commitment to improve transparency of its stewardship activities, for far too long the asset manager has kept everyone in the dark about the companies it was meeting with, the topics discussed, and most importantly the outcome of those engagements.”

Sustainable funds to become portfolio building blocks

The 2020 letter to clients also outlined changes to make Blackrock’s investment solutions, model portfolios, asset allocation iShares and target date portfolios more sustainable.

Sustainable funds would become the standard building blocks in investment solutions “wherever possible”, Fink said. Fees would remain “comparable” to traditional solutions, he added.

Blackrock will also launch sustainable versions of its iShares asset allocation funds, its Lifepath target date strategy, and its flagship model portfolios, including its Target Allocation range of models.

Single strategy funds to face same rigor on ESG risks as liquidity

Blackrock will now hold its active managers responsible for ESG risks within funds.

Its risk and quantitative analysis function would now be addressing ESG risks in its monthly oversight meetings with fund managers. The department currently oversees investment, counterparty, and operational risk.

Fink said this meant ESG risks would be analysed with the same “rigor” as liquidity and credit risks.

Blackrock would also be launching thematic and impact investing funds beginning with the Global Impact Equity fund in Q1 2020, he said. It planned to double its ESG iShare range to 150 funds “over the next few years”.

Next step of coal divestment

Blackrock is in the process of divesting active equity and bond funds from companies that earn 25% or more of revenues from thermal coal, Fink said.

This divestment is due to complete in mid 2020.

The same standard would be applied to future investments within Blackrock’s alternative range.

Shareaction’s Martin described the move as “yet another significant blow to the already dying market” but pointed out banks, like Barclays, continue to prop-up coal-heavy companies.

“If Blackrock is serious about its commitment to phase out thermal coal, it should use its voting rights to get major coal financiers to do the same,” she said.

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Jessica Tasman-Jones

Jessica Tasman-Jones is news editor at Portfolio Adviser and covers fund selection, asset allocation and portfolio construction for intermediaries, as well as industry news and regulation. Previously she...

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