Global investors such as Blackrock and State Street have significant ownership of Australia’s largest companies. Given the size of their funds, they have no choice but to hold stock in these companies. Therefore, to improve returns they use their influence via guidelines, and very occasionally, engagement to influence company governance. They also set standards for other global and local investors to position themselves against. So their influence is beyond their already hefty 10% or more of the ASX 100 value they hold.

This article reviews Blackrock’s voting priorities, especially as they relate to board governance and executive remuneration (See HERE for last year’s summary article). It flags these through the CEO annual letter to shareholders advising on their calendar year voting and business priorities.

This year Blackrock tries to manage a path through the middle of climate activists on one side, and the politicisation of “woke” capitalism by those on the right. That is, Blackrock’s pursuit of stakeholder capitalism and sustainable long-term value is not “woke” capitalism — it is sound and prudent capitalism. Climate risk continues to be a key agenda in the most recent letter but is less prominent that the previous year’s letter, sharing focus:

• the change in monetary policies and regulations that spells the end for “easy money” and potential consequences that will follow.
• Longer elevated inflation that Blackrock forecasts will be difficult to tame due to a more fragmented (i.e. less globalised) economy.
• Retirement risk with lower market expected returns, higher housing and healthcare costs.

We have already seen the heightened emphasis on climate related measures in executive incentives. The Blackrock emphasis on consequences of money tightening and inflation will also be reflected in executive incentives.

For climate disclosures, Blackrock advocates for disclosures that detail how companies plan to navigate the energy transition to ensure companies generate long term robust investment returns for investors (especially scope 1 and scope 2 emissions). More than half of the S&P500 companies disclose scope 1 and scope 2 emissions, and Blackrock expects this number to rise.

As with the previous year, Blackrock acknowledges different pace changes between countries and industries. It also acknowledges that oil and gas will play a vital role in meeting global energy demands through the journey. Fossil fuels will remain important sources of energy for the future, with steps taken to mitigate methane emissions.

Though Blackrock provides support to transition to a lower carbon emissions environment, it notes changes to government policy, technology and consumer preferences are the significant drivers to a low carbon economy. Could it be that Blackrock is trying to position itself as not as big an influence on climate than others that activists can litigate against?

Mr Fink also ratchet’s up Blackrock’s initiatives to enable the individuals who provide with its finds to take accountability for voting on these and other matters. This has been bubbling away for some time as a means of diverting responsibility for the governance of investments, reducing its own stewardship risks. This model is being adopted by other global investors. It is expected that other funds, including Australian superfunds, may follow suit.

BlackRock CEO Larry Fink’s letter to investors can be found HERE.

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