BlackRock recently walked back its public commitments to ESG in various ways. And for good reason. BlackRock has lost billions of dollars from state pension funds and others pulling out of ESG funds while it has taken a brand beating for its support of ESG.
The company has been the subject of ad campaigns, investigations, and numerous inquiries from state attorneys general, treasurers, and legislatures. Congress examined ESG practices in July, and BlackRock often found itself squarely in the line of questioning from lawmakers.
This summer, BlackRock CEO Larry Fink declared that he was ashamed to be mentioned in the ESG debate and that BlackRock should move away from the term ESG itself. They hired lobbyists in DC and across the country, particularly in states like Texas, where BlackRock faced investigations and possible divestments, and funded a feel-good ad campaign to go on the offensive. They even began touting their investments in oil and gas and other disfavored industries.
As part of these efforts, BlackRock released self-reported data that their support of ESG through proxy voting in 2023 declined from previous years. Its support of “E&S” shareholder proposals declined from 43% in 2021, to 24% in 2022, to just 7% in 2023. The firm largely blamed overly prescriptive proposals and other changes to the content of the resolutions themselves instead of claiming an ESG about-face.
However, a look at the data shows that BlackRock’s ESG activism may have already accomplished much of its goals and may be why Fink and other activist asset managers are publicly pulling back from ESG.
But don’t take Fink at his word.
BlackRock and others’ high level of ESG proposal support in 2021 and 2022 pushed many companies to take on ESG initiatives that are largely standard practice across corporate America now. This includes reporting GHG emissions, setting net-zero emissions targets, publishing diversity data, meeting board diversity thresholds, and more. Proxy voting was merely the last resort if BlackRock did not get its way through negotiation or “engagement meetings” as the firm describes it. BlackRock reported nearly 4,000 “engagements”lobbying the C-suite on diversity and climate issues during the 2021-2022 proxy season. If unsuccessful in private, the investment manager often voted with others against management or board members and supported shareholder resolutions to force behavior.
BlackRock and others became more careful about voting behavior in 2022 as scrutiny increased, but the world’s largest asset manager used its might when it mattered. So did State Street. An analysis of the ten most supported resolutions filed by ESG activist coalition As You Sow in 2021 and 2022 (see table) shows that BlackRock supported 80% in 2021 and 70% in 2022, and State Street 70% in both.
This massive pressure coerces recalcitrant companies to abide by the ESG agenda when they are not receptive to negotiations – and sends a message to other CEOs.
Some of this is cause and effect; as one of the largest shareholders in every one of the S&P 500 companies, BlackRock often can sway a vote by several percent. This draws special attention to the proposals just barely receiving over 50% of shareholder support. If BlackRock had voted differently, ExxonMobil and Phillips might have been able to focus on business rather than issuing climate reports that activists are sure to use against them.
In 2023, BlackRock and others supported even fewer E&S resolutions. And understandably so; every “for” vote draws scrutiny for supporting ESG causes that management opposes. Why risk unnecessary controversy on votes that are more likely to fail anyway? However, it is worth noting that the self-reported stats BlackRock issues leave out the governance-related proposals. A new report reveals that BlackRock voted on 30% of ESG-related proposals in 2022, 6% more ESG-support than the 24% number it reported on E&S proposals. These governance proposals are potentially the most impactful.
Because BlackRock imposes diversity requirements on companies, its voting on governance proposals is important. It requires company boards to be at least “30% diverse, including at least two women and 1 director who identifies as a member of an underrepresented group.” BlackRock votes against directors at companies who have not established sufficient progress towards this goal.
Now that the ESG train has gained momentum, Fink can afford to take his visible hand off the throttle. But while Fink keeps his head down in public, we don’t know what he’s doing in private. Regardless, companies valuing shareholders and long-term viability should get back to business and away from the stakeholder capitalism they’ve been forced to follow.
In the meantime, close scrutiny should be applied to BlackRock and other activists to ensure they are not furthering ideological agendas inside or outside the proxy voting process. This is especially true for state pension funds, which rely on taxpayer dollars and require the highest level of fiduciary care.
To move past ESG, investors need to move past BlackRock and other activist asset managers.