2020 Climate Action From Wall Street: A BlackRock Review

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The Biden team is threaded throughout with a climate mission. His administration, which is set to include Gina McCarthy, Deb Haaland, Jennifer Granholm, John Kerry, and other climate actors, is a significant shift from the what Bill McKibben calls “the coterie of coal lobbyists and oil-industry operatives that have decorated the current Administration.” Biden also has selected Brian Deese, a BlackRock, Inc. executive and former Obama administration official, to lead his National Economic Council.

A statement from Biden said part of the reason he chose Deese was his background in climate issues. “If we’re going to tackle the climate challenge, we need to make sure that solutions are woven into every output of our policy making.” In a 2016 Rolling Stones interview, outgoing President Barak Obama commended Deese. “He engineered the Paris Agreement, the [Hydrofluorocarbons] Agreement, the Aviation Agreement, may have helped save the planet, and he’s just doing it while he’s got two babies at home, and could not be a better person,” Obama said.

Bloomberg points out that many progressive groups have criticized Deese, arguing that his experience at BlackRock may make him too sympathetic to the financial industry. They’re also unimpressed by his record on climate.

The Wall Street Influence of BlackRock

Sometimes considered a shadow US government, Wall Street exerts a tremendous influence on the US federal policymaking. As the world’s largest asset manager, BlackRock is an increasingly influential player in Washington, DC. BlackRock makes most of its money handling investments for outside clients, largely institutions like public pension plans, endowments, and foundations.

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Its CEO Larry Fink was recently named the first Institutional Investor of the Year by Institutional Investor magazine. They commended Fink for standing up and admitting that the climate crisis will now be most significant determining future factor of every business — it will prompt a massive movement of global capital. “I think people will look back in 2021 and find that those companies that are not focusing on climate change and how it impacts their company will trade at a lower and lower P/E, and companies that are front-footed and focused on it will be trading at higher P/Es,” Fink said in a congratulatory interview.

So BlackRock’s 2020 record on climate must be revelatory, right? Visionary, transcendent? A bit yes, a bit no.

Large asset managers have the power to hold climate-critical companies accountable to undertaking the urgent transformations that the climate crisis demands. Majority Action — the non-profit, non-partisan organization that empowers shareholders to hold corporations accountable to high standards of corporate governance, social responsibility, and long-term value creation — has investigated how asset manager voting shaped corporate climate action in 2020. Even though BlackRock made public commitments to hold corporate directors accountable in the 2020 proxy season, Majority Action found that BlackRock:

• Was just as likely to support management at utilities that had not made a net-zero commitment as at those that had made one prior to their annual meeting

• Persisted in using its shareholder voting power to shield corporate boards from accountability
• Continued to undermine global investor efforts to promote responsible corporate climate action
• Voted to elect 99% of the directors proposed for boards at energy companies and utilities, even if the companies had made no serious climate commitments
• Supported just 3/36 “climate-critical resolutions” put to shareholders at S&P 500 companies—resolutions that might have curbed JPMorgan Chase’s lending to the fossil-fuel industry, or Duke Energy’s lobbying efforts
• Voted against 10 of the 12 shareholder proposals flagged by the Climate Action 100+ coalition — of which BlackRock is a member
• Undermined the largest global investor efforts for accountability and transparency in the energy, utility, industrials, and automotive sectors.

Is There Hope? BlackRock’s Promises for 2021

In a document titled “Our 2021 Stewardship Expectations,” BlackRock does more than an annual review and update to global principles and market-specific voting guidelines. It immediately states that the firm has “intensified our conviction that sustainability risk — and climate risk in particular — is investment risk.” As a result, it made several changes to policies on environmental and social factors, pledging to “continuously strengthen our stewardship practice,” including:

• The demonstrated impact that sustainability-related factors can have on a company’s ability to generate long-term risk-adjusted returns
• The shift it expects to see by companies to align their underlying business models with the goal of limiting global warming to well below 2 degrees Celsius and reaching net zero greenhouse gas (GHG) emissions globally by 2050
• The application of its latest insights on the impact voting has on corporate behavior

BlackRock’s Big Problem — a global network of NGOs and social movements that are pressuring asset managers like BlackRock to align its business practices with a climate-safe world — acknowledges that BlackRock leadership has said that they plan to take strong voting action — including voting off directors and supporting shareholder proposals — at more companies with greater transparency. These activists take great pride in the shift that BlackRock seems to be taking as a result of “tireless grassroots efforts, accountability and reporting from shareholder advocacy organizations, client pressure, and changes in leadership within BlackRock itself.” As the group at BlackRock’s Big Problem unpacked the BlackRock plans for 2021, the following items stand out, some of which move in the right direction, while others are just more subterfuge.

• After global attention and criticism on BlackRock’s key role in companies driving deforestation, BlackRock is saying it will release further commentary on its approach to deforestation and biodiversity protection in January 2021.
• BlackRock says it will ask companies for net zero business plans, but then says the Task Force on Climate-related Financial Disclosures (TCFD) framework is the path for doing that. However, TCFD is a disclosure framework, not a decarbonization framework.
• BlackRock admits that shareholder resolutions lead to changes at companies and says it will vote on more resolutions.
• BlackRock is asking for more information on lobbying and political spending from the carbon-intensive companies it owns because it often sees major contradictions in companies’ stated values and what they or their trade associations push for from governments.
• BlackRock fails to articulate how it will hold companies, particularly financial firms, accountable for scope 3 emissions disclosure and reduction.

The analysis ends with a reminder how a coalition of more than 60 climate and human rights organizations around the world have endorsed the Principles for Paris-Aligned Financial Institutions, which spells out how banks, asset managers, and other financial institutions must address their role in the climate crisis.

Final Thoughts

It’s time for Wall Street to exclude once-and-for-all fossil-fuel companies in the index funds where its passive-investment clients park their money. Given the urgency to set companies on the path to net-zero emissions, Majority Action recommends that institutional investors vote against chairs and lead independent directors at systemically important carbon emitters that have failed to set targets of achieving net-zero carbon emissions by 2050 at the latest. For asset owners, Majority Action recommends closely examining the proxy voting activities of asset managers, demanding greater transparency on those managers’ voting decisions, calling the asset managers to account for inadequate voting policies and practices, and considering those activities when evaluating and selecting asset managers.