It’s been a remarkable few months for investors who are committed to pursuing environmental, social, and governance goals. One major development came from the desk of BlackRock chairman and CEO Larry Fink.
In January 2018, he published his annual letter to the CEOs of America’s largest companies. With $6.2 trillion in assets under his firm’s management, Mr. Fink commands the attention of corporate executives in a way few other asset managers can, making the BlackRock announcement important to anyone interested in predicting future trends. The letter states that, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Moving from Discussion to Action
Many large asset managers like BlackRock, Fidelity, and Vanguard have been talking about ESG values for a number of years now. What’s changed is that this pressure is finally beginning to bear fruit. “During the past year, key shareholder proposals on sustainability issues gained a majority vote for the first time. And that wouldn’t have happened without the kind of support seen in the BlackRock announcement,” said Casey Clark, director of sustainable and impact investing at Glenmede.
Shareholders at ExxonMobil, for example, voted in favor of a proposal requiring the oil giant to provide a detailed analysis of the risks posed to its business by policies aimed at reducing climate change. A similar resolution was adopted at Occidental Petroleum. “The emphasis on shareholder engagement is now translating into concrete action,” said Clark.
BlackRock’s plan to double the size of its investment stewardship team, which facilitates ESG-related shareholder engagement, over the next three years demonstrates their commitment. They will be hiring more people specifically to monitor sustainability and making an increased effort to engage in more dialogue with corporate executives. As recent victories indicate, shareholders are successfully demanding that corporations pay attention and take action.
Change Is on the Horizon, But Questions Remain
“I believe this letter will be an important catalyst for change. It’s going to help create a dialogue within large public companies about the need to address ESG issues. That alone is powerful. More importantly, these discussions are going to keep happening,” said Clark.
Companies will now, more than ever, have to question their effects on society and how they measure and disclose those effects. How will they address diversity? How will they ensure a sustainable supply chain? How will they disclose data and how can they ensure that data is meaningful? High-profile public pressure like the BlackRock announcement will only increase the urgency.
“Positive tilting toward companies with greater emphasis on ESG factors, coupled with shareholder engagement, gives investors the highest probability of meeting both investment and impact goals. By gaining ownership in a company and then sitting around the table with them and developing a long-term dialogue, you may be able to have a tremendous impact,” said Clark.
These efforts are already seeing results. According to the Wall Street Journal, women now make up a third of new candidates for seats on corporate boards, up 15 points from just five years ago. That may be powerful evidence that promoting better ESG performance can pay off in concrete ways.