March 21, 2023
Two years ago, I wrote that
anticipating Larry Fink’s annual letter to CEOs, a 10-year tradition
which typically has arrived in January, was like waiting for Moses to
come down from the mountain. He softened
his tone last year. Now, it’s apparent a “vibe shift” has
arrived. Mr. Fink has finally made it clear…in March…that this year,
there will be no pontificating to CEOs. At least, not as directly as
in years past.
Instead, he’s sticking to updating BlackRock’s investors – via an 18-page
letter published last week. That hasn’t stopped corporate
folks from poring over his commentary for hints on how the world’s
largest asset manager might vote at annual meetings this year, and
what its priorities will be.
The term “ESG” doesn’t appear anywhere in the letter. That’s a sign of
the times since that terminology, and investors’ involvement in
encouraging ESG disclosures, has become a lightning rod for
politicians (and wannabe politicians). However, it would be a bridge
to far to declare that this means that ESG has been “cancelled” or
that BlackRock has given up on long-term, sustainable value creation.
The letter still gives plenty of play to the importance of solid
corporate governance in the midst of evolving risks & opportunities –
e.g., talking about the “price of easy money” in the wake of recent
financial industry issues, and how that compares to BlackRock’s strong
returns. The asset manager’s co-founder, Chair & CEO is also still
continuing to beat the “climate transition” drum, although that
message keeps getting refined away from directing portfolio companies
what to do and towards how this is a choice for BlackRock’s investor
clients:
|
Better data is essential. More than half of the companies
in the S&P 500 now voluntarily report Scope 1 and Scope 2
emissions. I expect that number will continue to rise. But
as I have said consistently over many years now, it is for
governments to make policy and enact legislation, and not
for companies, including asset managers, to be the
environmental police.
Transition toward lower carbon emissions will reflect the
regulatory and legislative choices governments make to
balance the need for secure, reliable and affordable
energy with orderly decarbonization.
We know that the transition will not be a straight line.
Different countries and industries will move at different
speeds, and oil and gas will play a vital role in meeting
global energy demands through that journey. Many of our
clients see the investment opportunities that will come as
established energy companies adapt their businesses. They
recognize the vital role energy companies will play in
ensuring energy security and a successful energy
transition. |
He
goes on:
|
Some of the most attractive investment opportunities in
the years ahead will be in the transition finance space.
Given its importance to our clients, BlackRock’s ambition
is to be the leading investor in these opportunities on
their behalf.
I wrote last year that the next 1,000 unicorns won’t be
search engines or social media companies. Many of them
will be sustainable, scalable innovators – startups that
help the world decarbonize and make the energy transition
affordable for all consumers. I still believe that. For
clients who choose, we’re connecting them with these
investment opportunities. |
The letter also touts BlackRock’s new “voting choice” initiative and
has this to say about stewardship activities:
|
Making these decisions requires understanding how
companies are responding to evolving risks and
opportunities. Changes in globalization, supply chains,
geopolitics, inflation, monetary and fiscal policy, and
climate all can impact a company’s ability to deliver
durable value. Our stewardship team works to promote
better investment performance for our clients, the asset
owners. The team does that by understanding how a company
is responding to these factors where financially material
to the company’s business, and by advocating for sound
governance and business practices. For many of our clients
who have entrusted us with this important responsibility,
BlackRock’s stewardship efforts are core to what they are
seeking from us.
At the same time, we believe that adding more voices to
corporate governance can further strengthen shareholder
democracy. But democracy only works when people are
informed and engaged. As more asset owners choose to
direct their own votes, they need to make sure they are
investing the time and resources to make informed
decisions on critical governance issues. Proxy advisors
can play an important role. But if asset owners rely too
much on a few proxy advisors, then their voice may fall
short of its potential. I certainly believe that the
industry would benefit from more proxy advisors who can
add diversity of views on shareholder issues.
Amid these shifts, companies will also need to find new
ways to reach their shareholders who choose to direct
their own votes, and robust disclosures and advances in
the proxy ecosystem will become even more important. |
I blogged about
BlackRock’s 2023 voting guidelines a few months ago. If they’re a big
shareholder at your company, make sure to review those and their “Global
Principles” as you head into annual meeting season.
– Liz
Dunshee
Posted by Liz
Dunshee
Permalink: https://www.thecorporatecounsel.net/blog/2023/03/blackrocks-letter-to-shareholders-sign-of-the-times.html |