BlackRock, the world’s largest asset manager, has partnered with Ceres to issue a guide for institutional investors seeking engagement on sustainability and corporate responsibility issues with companies.
The resulting 68-page guide is certainly timely. More companies realize they have to consider the impacts that environmental and social issues have on their business, but the demands of Wall Street and the short-termism endemic in the U.S. means corporate social responsibility (or what our friends abroad designate as environment, social and governance — ESG) is still overlooked.
But times are changing. More institutional investors understand the risks within a company’s supply chain, ranging from climate change to human rights abuses, pose long-term threats to its business. And in recent years, investors have used the power of communication — backed up by the number of shares owned in a company — to get businesses to change their ways. The recent decision of Lowe’s to stop using bee-killing pesticides, and that of food conglomerates such as ADM to clean up their palm oil supply chains, are a few examples of investors’ successes in pushing companies to adopt more responsible company policies.
The question for investors, however, is the approach they should take when it is time to “speak up” to the companies in which they have purchased shares.
To that end, this report, 21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions, is a primer for U.S. institutional investors ready to ramp up their engagement with companies but unsure of how to start. While we often hear the word divestment as a threat when we read financial news, the BlackRock-Ceres report argues that direct communications with companies is the preferred route instead of selling shares of companies underperforming on the sustainability front.
Such a strategy is especially true if an investor owns a large share of that company or is focused on long-term results. After all, the power of persuasion (as in an eloquently written threat with teeth) is starting to gain traction. Therefore, the report offers guidance on a variety of tactics, such as proxy votes for shareholder resolutions.
The advice this report offers is crucial considering the momentum activist shareholders have generated. Once dismissed as an occasional annoyance led by a few ragtag activists, shareholder resolutions are on an upswing, in part because the threat alone can nudge a company to change a policy. Shell’s executive leadership recently supported a shareholder resolution that requires the company to recognize climate change risk. While some activists may sniff at what they see as a token step, such a response would have been unthinkable only a few years ago.
In addition to laying out frameworks for engagement strategies, from the development of a strategic communications plan to how to follow through on a proxy vote, the guide is full of case studies as well. Finally, this report offers some suggested questions investors should ask companies based on industry — from food retail to banking and even for sectors that have been slow to accept sustainability-related risks, such as insurance companies.
In the end, this report should be required reading for all investors, including professionals working at large international financial companies, as well as individual investors who understand that environmental and social performance is important to a company’s bottom line.
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Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.