BlackRock’s expectations on directors higher than ever

BlackRock Inc is the world’s largest institutional investor with over US$7 trillion in assets under management across the globe. BlackRock’s 2020 Investment Stewardship Annual Report (pdf), released this week, summarises the firm’s stewardship engagement and voting record for the reporting period 1 July 2019 to 30 June 2020. We highlight some key insights and trends below.

Unprecedented opposition to director re-election

BlackRock opposed the re-election of more directors than ever (over 5,100) due to the following factors:

• lack of board independence (over 1,700 times)
• lack of board diversity (over 1,500 times)
• over-commitment (over 700 times, up from 430 two years ago).

Greater societal and environmental expectations

Stakeholder expectations have risen in the last year with COVID-19 highlighting the need for companies to become more involved in addressing global issues such as climate change and racial inequality:

“The significant social and economic dislocation caused by COVID-19 has further brought to the fore the need for the private sector to take a more active role in tackling global challenges. Climate change, social and racial equity, and demographic and technological shifts all expose companies to material business risks, which in turn present risks to the long-term value of our clients’ investments.

In the year ahead, we anticipate more engagement and voting to be focused on the extent to which companies are addressing these issues within their businesses.”

BlackRock re-iterated its expectations for companies with significant climate risk exposure to report on this in alignment with the Task Force on Climate-related Financial Disclosures (and also on sustainability). The firm voted against 53 companies that did not meet its expectations on climate risk management and put another 191 ‘on watch’ (meaning those companies needed to make substantial progress on this issue in the next year).

More engagement than ever

BlackRock doubled its engagement with over 3,000 conversations with company leaders. This included 750 engagements with companies on the topic of human capital management (an increase of 187% from the year before) – eg inclusion and diversity, labour practices, employee development and retention and employee health and safety.

BlackRock also acknowledged that an increasing number of companies now recognise the importance of a clear purpose and strategy to the creation of long-term value in companies.

“We find increasing recognition among companies of our conviction that those with a credible long-term strategy, founded on a clearly articulated purpose, will generate more long-term value and be rewarded by more patient, long-term capital.”

For more insights and trends, see the Blackrock website