Dive Brief:

• Asset management firm BlackRock has published a list of 244 companies it says have taken insufficient action against climate change. BlackRock has taken voting action against 53 of these companies, including seven utilities, according to the report.
• Public censure and voting action by BlackRock sends a clear message to the firm's portfolio companies, and may be part of a wider trend toward investor activism, analysts say.
• However, environmental advocates say market forces, consumer trends and other forces seem to hold more sway with utilities than action by investors.

Dive Insight:

Climate activism by investors entered a new phase this month when leading asset management firm BlackRock published a list of portfolio companies it says have been put "on watch" and given 12 to 18 months to meet climate-related goals.

As of early July, BlackRock said it had identified 244 companies that have made insufficient progress on climate change and that face "material financial risks in the transition to a low-carbon economy." BlackRock reported it has already taken action against 53 of these companies by voting against the directors responsible for the company's sustainability initiatives or by voting in favor of climate-related shareholder proposals. The remaining 191 companies face similar action in 2021 if they do not change course beforehand, according to BlackRock.

"This sends an unmistakable message," said Uday Varadarajan, a principal focused on utility finance and policy at the Rocky Mountain Institute. BlackRock "has enough voting power to bring other large shareholders with them, and for the companies on that list, it does mean a material issue they need to respond to."

As one of America's three largest asset managers, BlackRock's actions have significant trendsetting potential in the world of finance, Varadarajan said. But the firm's actions are made all the more powerful by the fact that they're driven by the firm's primary investors, and backed by consumer sentiment.

"It is an opportunity that presents itself," he said, "because consumers are making their wishes around carbon known to financial companies and with the products they purchase directly."

The July list, according to Ben Cushing, a senior campaign representative for financial advocacy at the Sierra Club, represents "the first major test" of the climate commitments BlackRock made to investors earlier this year. But the actions reported, he said, are merely "a set of baby steps forward."

Despite identifying 244 companies that did not meet its standards, BlackRock only took action against just 20% of them. This result, according to Cushing, "shows that BlackRock has not yet fully grasped the scale and urgency of the climate crisis because there isn't time to go through several more years of prodding and asking nicely and putting companies on watch lists. BlackRock needs to use its power to actually hold companies accountable and drive real action."

Cushing suggested BlackRock could take a closer look at whether companies make meaningful progress toward stated climate goals rather than just rewarding them for having set goals they may or may not actually pursue. He also questioned why BlackRock, which did not respond to requests for comment on this article, continues to invest in companies where fossil fuels are core to the firms' business model.

Kevin Haley, director of member value and engagement at the Renewable Energy Buyers Association, agreed that BlackRock's ability to influence companies via voting actions and similar mechanisms is likely limited.

"Shareholder activism will probably, on its own, remain a tool in the toolkit to motivate companies to take climate action," he said. "To have the level of activity necessary to truly mitigate climate risk and address the impacts of a world that is quickly warming ... those activities can only happen when this kind of thinking is internalized by the companies themselves."

This is likely especially true for utilities, according to Varadarajan.

"It is an important, positive step to see BlackRock engage," he said. "But shareholder activism on its own will not be effective in a sector like the utility sector, where change involves multiple stakeholders." 

For investors, Haley said, the question of whether to sell or whether to engage a company with shareholder activism boils down to the specific company's attitudes toward decarbonization, making it a case-by-case decision that may ultimately rely on markets and timing.

"I think the investors' biggest challenge right now is timing," he said. "Do they need to make decisions immediately? Do they have time for activism? Will some businesses never change?"