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The ESG Review: BlackRock shifts its climate emphasis

Investors that seek to force faster and more specific corporate action on global warming may have found their positions weakened after statements made by BlackRock this week.

The dual impact of new US SEC laws on shareholder voting process and Russia’s invasion of Ukraine prompted the asset management giant and ESG trailblazer to warn that it will pull back on its support for climate change-related resolutions, which it says have become too extreme or amount to micromanagement.

As this Financial Times piece outlines, the crux of the tension, and shift in emphasis from BlackRock, seems to be the nature of shareholder proposals from activist investors that seek to block finance for fossil fuel companies, force them to decommission certain assets or commit them to specific and absolute emissions reductions goals. BlackRock’s intention is to change its approach by not supporting proposals that it considers to constitute micromanagement of corporate fortunes or are directly against the financial interests of shareholders.

It was quick to point out that this is not a change in position, and that it will “continue to vote in favour of proposals that called for improved disclosures or pushed companies that did not have a transition plan to come up with one.”

But it also acknowledged that the Ukraine invasion has changed the game by driving more short -term investment “in traditional fuel production to boost energy security.”

The SEC laws have been called out as a move to limit the impact that activist investors can have in seeking to force corporate change, particularly in environmental commitments. The statement from BlackRock this week is something of a line drawn in the sand though; that now is not the time to be diametrically opposed to shareholder interests or put too severe a thumbscrew on emissions reduction given the energy crisis that the western world faces.

The mechanics of shareholder pressure, and the stances of large investment managers, are complex, and the way in which parties adapt to the war and the international energy rethink will likely drive more headlines this year.

Understanding the complexity of EST ratings is another challenge. Thankfully, this series of explanatory pieces by Joel Makower, sustainability authority and co-founder of Green Biz, is the most useful piece of journalism I’ve come across for making sense of it all and giving the detail behind it. This week he covered the secret life of ESG ratings and how ESG ratings are built, with more to come.

The first piece quotes ‘a European Commission official who asked not to be named’ that among the ESG ratings issues the EU saw with companies was "the lack of transparency around methodologies, around data sources, potential conflicts of interest."

Regulation is building on multiple fronts to try to bring rigour where it’s most needed, while financiers are beginning to sharpen their pencils as markets aim to navigate a choppy and risky period. As ESG itself seeks clearer definition and firmer foundations, it points to tense times ahead.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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