BlackRock has told 1,000 of the biggest polluters in its portfolio to publicly disclose emissions across their core businesses and wider value chain alongside "rigorous" decarbonization targets, or risk the asset manager voting against them at shareholder meetings.
The world's biggest asset manager, which looks after around $8.67 trillion of investments worldwide, last Wednesday unveiled further details of its approach for engaging with companies on their climate efforts in 2021 and beyond, in a bid to provide "greater specificity" around its expectations for management teams.
Companies should as standard disclose their Scope 1 and 2 emissions — covering their core business activities and energy use — in addition to setting "rigorous" short, medium and long-term greenhouse gas reduction targets, BlackRock said. It added that companies in carbon intensive industries within BlackRock's portfolio, including major oil and gas firms, also should disclose emissions from their entire value chain and use of products, known as Scope 3 emissions.
In addition, such firms should articulate how they consider the impact of emissions in their value chain and "embrace opportunities to use and contribute to alternative energy infrastructure," BlackRock said.
"Where disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan, we may vote against the directors we consider responsible for climate risk oversight," BlackRock warned. "We may also support shareholder proposals that we believe address gaps in a company's approach to climate risk and the energy transition."
The update follows BlackRock CEO Larry Fink's annual letter to businesses last month, in which he called on companies to publicly set out how they plan to achieve net-zero emissions, and publicly disclose risks in line with recommendations from the Taskforce on Climate-related Financial Disclosures (TCFDs).
The asset manager, which has been slowly stepping up its pressure on companies to enhance their climate risk management and set more ambitious decarbonization goals in recent years, last week described the transition towards a net-zero economy as "a critical driver of long-term shareholder value," adding that strengthening its engagement with firms on climate change was a "crucial component of our fiduciary duty to our clients."
The financial powerhouse has faced criticism in the past from environmental groups, which have argued that it largely has failed to vote against high-carbon companies that fail to come forward with credible climate strategies. However last week, the firm stresses that in 2020 it voted against management at 69 carbon-intensive companies and put 191 firms "on watch" over their climate efforts. Now it is set to expand its engagement efforts this year, confirming it would extend its climate focus to include 1,000 carbon-intensive companies it works with, rising from 440 last year. The move means the company is directly engaging with assets that account for more than 90 percent of the global Scope 1 and 2 emissions across its portfolio. It added that supporting shareholder proposals around sustainability "would play an increasingly important role in our stewardship efforts" in 2021.
Where disclosures are insufficient to make a thorough assessment, or a company has not provided a credible plan, we may vote against the directors we consider responsible for climate risk oversight.
"Underlying our desire for greater disclosure on emissions baselines, greenhouse gas reduction targets and transition plans is our conviction that climate risk is investment risk," BlackRock said in a statement. "Solutions to climate change and the transition to a low-carbon economy require concerted effort on the part of companies, including assessing their operations and adapting their businesses to remain resilient."
BlackRock is far from the only major investor stepping up the pressure on companies to improve their climate risk disclosure and decarbonization targets. Early last week, French bank BNP Paribas announced plans to strengthen its investment policies in a bid to tackle deforestation in Brazil driven by demand for beef and soy, while ISS — the world's largest shareholder advisory firm — said it would "consider" recommending its clients vote against climate-laggard boards.
Separately, the Climate Action 100+ group of institutional investors announced last week it was seeking higher climate ambition from carbon-intensive companies worldwide in the upcoming AGM season, as it flagged a set of key climate-related proposals for investors to put before company boards.
The investor engagement initiative, which includes 525 investors together boasting $52 trillion assets under management, seeks to engage with those companies around the world deemed most responsible for global greenhouse gas emissions.
For the 2021 proxy season, Climate Action 100+ investors have filed 37 shareholder proposals at North American focus companies — including ExxonMobil, General Motors and Phillips66 — seeking enhanced climate risk disclosures, alignment of strategies with the Paris Agreement and transparency around corporate lobbying practices, it said.
"Proxy resolutions and routine votes, considered by all shareholders at corporate annual meetings, are an increasingly important tool for investors to protect value and reduce systemic risk in a world in which the climate crisis is an ever greater danger," said Mindy Lubber, CEO and president of green non-profit Ceres and a member of the global Climate Action 100+ steering committee.
For the moment, many of these announcements provide evidence of investors' hopes that their efforts will drive positive responses from the companies they engage with, but there are also signs of some investors are losing patience with climate-laggard companies. For example, last week, it emerged that Kempen Asset Management, which oversees almost $100 billion of investments, has divested all of its shares from ExxonMobil, amid concerns the oil and gas giant is failing to move fast enough to shift its business onto a low carbon footing in the face of growing climate and transition-related threats.
Are the walls beginning to close in on carbon intensive companies? The latest announcements certainly tee up a potentially explosive AGM season. In the coming months, many of the world's biggest companies and polluters will face their shareholders at meetings and hundreds of climate-related resolutions already have been filed in a bid to accelerate climate action on multiple fronts. And with major investors sending strong signals of their climate expectations, company boards will be faced with a simple choice: either step up their climate game, or face a potentially embarrassing shareholder rebellion.