Earlier this month, through the novel coronavirus crisis that has halted much business activity in the world, the global investment manager BlackRock Inc. said it would do more to follow through on climate action. Ahead of the corporate annual meeting season, BlackRock executives have outlined more stringent priorities related to climate change and executive pay.
Despite the challenges confronting many companies during the pandemic, Michelle Edkins, a managing director at BlackRock, indicated to Reuters that the firm will not be lenient as it decides whether to support the re-election of board directors. BlackRock has given corporate boards have had plenty of time to make progress on climate issues.
“The concept of long-term sustainability would suggest that companies that come through this crisis and do well would be exactly the kinds of companies you would look to as role models,” Edkins said.
BlackRock has already voted against the chair of the audit committee of National Fuel Gas Co. during its March 11 annual meeting for delayed reporting on climate matters, a BlackRock spokesperson told Reuters.
There’s no pausing climate action until next year for this investment firm. In a letter to CEOs, BlackRock’s CEO, Larry Fink, wrote, “Last September, when millions of people took to the streets to demand action in climate change, many of them emphasized the significant and lasting impact that it will have on economic growth and prosperity — a risk that markets to date have been slow to reflect. But awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
He adds later that investors are waking up to the fact that “climate risk” is “investment risk.”
The letter outlines actions BlackRock is asking companies to take in 2020:
BlackRock will use these ESG (environmental, social and governance) disclosures or lack thereof to guide investments and voting. As an incentive, Fink includes in his letter the figure of 4,800 directors from 2,700 countries that BlackRock either didn’t vote for or voted against in 2019.
The same day, BlackRock wrote a letter to clients outlining initiatives the company is taking to position sustainability at the center of its strategies. Included are exiting thermal coal investments, publicly publishing the sustainable characteristics of all products and doubling ESG Exchange-Traded Fund (ETF) offerings.
Is BlackRock correct to assume that companies with a long-term sustainability outlook will be more resilient in this crisis? A new report from RBC Capital Markets (RBC) supports that conclusion. The study finds that companies performing highly on ESG factors have outperformed the rest of the market since the S&P 500 peaked on February 19.
Progress didn’t slow in March, as two-thirds of actively managed sustainable equity funds were beating their benchmark this month, as Sara Mahaffy, U.S. equity strategist at RBC and writer of the report, told Barron’s. Flows into these funds remained positive into March, the report found.
The resiliency thus far of ESG-driven companies indicates those are the businesses the American people trust, even in the midst of a crisis. And so far, the numbers are backing up this sense of trust.
“There is now a clear and direct line from a company’s ESG performance to cost of capital, profitability and share-price volatility,” Bud Sturmak, co-chief investment officer of Perigon Wealth Management, told Barron’s.
But ESG efforts have some evolving to do, and need to go beyond commitments to climate action. The coronavirus pandemic has brought deeper awareness to the ’S’ of “Social” in ESG, especially as a record 3.3 million Americans file for unemployment benefits and others are furloughed.
“When we talk about the E, S and G, S has always been the poor cousin; it’s the issue that gets left behind,” Fiona Reynolds, CEO of the United Nations Principles for Responsible Investment, said in an interview with Bloomberg. “We are human so you’d think we’d prioritize things about other humans.”
BlackRock is not alone in its continued sustainability push. Barclays and Citigroup Inc. have also indicated they are supporting deeper vetting of companies’ ESG efforts during the pandemic. Barclays plans to provide an ESG assessment for all the companies it covers, and Citigroup told clients it will be asking companies more questions about employee benefits and mortgage relief.
It remains to be seen which companies’ stocks will remain resilient through the crisis. Even through the uncertainty, investors like BlackRock are reminding Americans that climate action must continue (though some organizations are less than impressed with BlackRock’s business practices). When we finally emerge out from the coronavirus crisis, though, we will approach ESG will be quite different. This pandemic is showing us that long-term company health means caring for workers just as much as we care for the earth.
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