Global investment management corporation BlackRock, which controls assets worth $5.1 trillion, is getting serious about climate change and the risk it poses to businesses. The fund manager has recently threatened to put directors of companies that fail to address climate risks on the chopping block.
BlackRock believes climate change presents significant investment risks and will ultimately impact the long-term shareholder value of many companies. To protect its clients and ensure long-term financial sustainability of the companies it invests in, the company intends to engage with businesses that face significant challenges brought on by climate change over the next year and help them communicate the financial impacts of global warming and the shift to a low-carbon economy to investors.
According to BlackRock CEO Larry Fink, companies need to help investors understand the ESG factors most relevant to their business, as well as the company’s ability to deliver a long-term strategy and generate value over time. BlackRock has identified sound governance, risk management oversight, board accountability and disclosures as crucial elements of sustainable financial performance and value creation.
“Climate risk will be one of the key engagement themes that the Investment Stewardship team will prioritize in 2017 and the team’s recent work on the issue … will inform our assessment of shareholder proposals on the topic,” Fink said in a briefing note.
“Over the course of 2017, we intend to engage companies most exposed to climate risk to understand their views on [reporting their climate risks].”
“For directors of companies in sectors that are significantly exposed to climate risk, the expectation will be for the whole board to have demonstrable fluency in how climate risk affects the business and management’s approach to adapting and mitigating the risk.”
BlackRock has spoken out in support of shareholder proposals to mitigate climate risk that address “a gap in investment-decision and stewardship relevant disclosure” that the company believes could “lead to material economic disadvantage to the company and its shareholders.” The fund manager has also said that if it does not see progress on key issues, it will take strides to oust directors and managers who respond inadequately to address their concerns.
“Ultimately, the board is responsible for protecting the long-term economic interests of shareholders and we may vote against the re-election of certain directors where we believe they have not fulfilled that duty, particularly in markets where shareholder proposals are not common,” BlackRock added.
BlackRock’s recent paper “Exploring ESG: A Practitioner’s Perspective” provides further insight into its views on environmental, social, and governance (ESG) factors and demonstrates the firm’s focus on the impact they can have on long-term value.