Dive Brief:
- BlackRock recently updated its guidelines for managing funds and investments with “explicit decarbonization or climate-related investment objectives,” adding an additional screening process, voting guidelines and an engagement policy to the company’s typical stewardship process.
- The new policies will initially be applied to 83 Europe-based funds with $150 billion in assets under management, a BlackRock spokesperson confirmed to ESG Dive Monday. The firm will continue to follow its baseline policies for any clients who have not directed the company to prioritize climate risks or decarbonization.
- BlackRock said the updated framework is designed to prioritize sectors and companies “critical” to the low-carbon economy transition, taking “a long-term pragmatic approach” and accounting for sectoral differences, according to the updated guidelines.
Dive Insight:
The updated decarbonization policy, unveiled July 2, will consider both financial performance and decarbonization goals, whereas the BlackRock benchmark policy simply focuses on financial components and engages with climate and transition topics only when material to the business. The decarbonization policy will also assess how aligned companies are with the goal to limit global temperature rise to 1.5 degrees Celsius above pre-industrial levels.
BlackRock said the guidelines will apply to companies that produce goods and services contributing to “real world decarbonization” or have carbon-intensive business models and will face outsized impacts from a low-carbon transition due to its greenhouse gas emissions. The nation’s largest asset manager said the update is responsive to increased demand, including its “largest strategic relationship clients” in Europe who have net-zero commitments.
“An increasing number of clients are seeking to minimize the financial risk, and maximize the financial opportunities, associated with the transition to a low-carbon economy, and thus are interested in sustainable and transition investing,” Blackrock said in the update. “Changing government policy, technology, and consumer and investor preferences are driving the transition to a low carbon economy, but these forces are moving at uneven speeds across sectors and regions.”
The updated engagement also comes with a revised guideline for how BlackRock will vote in proxy for funds and clients with decarbonization goals. The firm said its engagement under these policies will look for companies to “provide sufficient corporate disclosure to allow us to determine the extent to which decarbonization and the low-carbon transition are strategic priorities.”
BlackRock said it will look for companies to disclose their transition strategy to show their alignment with a 2050 net-zero pathway; climate-related reporting consistent with the International Sustainability Standards Board’s inaugural frameworks; and scope 1, 2 and 3 greenhouse gas emissions. The firm still will not support shareholder proposals it believes “seek to direct management strategy.”
The firm said it may also support shareholder proposals for companies to align scope 1 and 2 emissions reductions targets with a 2050 net-zero pathway; publish transition plans and related disclosures; disclose the scope 3 emissions categories “most material to a company’s business model;” or improve their climate-related lobbying disclosures.
BlackRock will also look to determine whether a company’s board has clear and effective oversight and management of climate-related risks in service of funds and clients with decarbonization objectives, per the guidelines.
The firm also laid out the few instances where it may vote against non-executive directors over climate risk concerns. In cases where BlackRock determines a company is not executing its transition commitments, it may vote against “one or more directors who have responsibility for the issue,” such as the chair of a company’s sub-committee for climate, sustainability risk oversight or the low-carbon transition, it said in its revised policy.
BlackRock said the updated guidance should be taken in conjunction with its benchmark policies. The company may extend the guidelines to cover portfolios with a decarbonization and climate priority in the U.S. and Asia Pacific region at a later date, according to Bloomberg.
