In a significant development for ESG and corporate governance, BlackRock is now calling on the public companies it invests in to publish disclosure in line with the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD), and will “hold board members accountable” where companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing sustainability issues.1
Moreover, Blackrock will be “increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
These noteworthy statements came in two publicly available letters from Blackrock Chairman and CEO, Larry Fink. BlackRock is one of the world’s leading asset management firms, with assets under management totaling nearly $7 trillion.2
In its letters, Blackrock also announced its initiative to “place sustainability at the center of [its] investment approach,” stating that climate change has become a “defining factor in companies’ long-term prospects.” For climate-related sustainability disclosure, BlackRock specifically called on companies to include their plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized, in accordance with TCFD guidelines.
The letters further note that BlackRock will map its engagement priorities to specific UN Sustainable Development Goals, such as Gender Equality and Affordable and Clean Energy, and that it will enhance transparency with respect to its shareholder engagement, including by: (i) moving from annual to quarterly voting disclosure,3 (ii) disclosing its vote on key high-profile votes promptly, along with an explanation of its decision, and (iii) enhancing disclosure of its engagements with companies by including in its annual stewardship report the topics discussed during each engagement with a company.
With respect to its investment choices, BlackRock announced a number of initiatives to further its sustainability-centric investment approach, including “making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening [its] commitment to sustainability and transparency in [its] investment stewardship activities.”
The announcements from BlackRock confirm what many US public companies have increasingly noted in the past year: First, there is a growing need for many US public companies to enhance sustainability disclosures on their corporate websites to align with investor sentiment. Second, the two reporting frameworks, SASB and TCFD, have become the leading frameworks favored by the largest investors in US public companies. Third, BlackRock’s new policy announced in its letters does not use absolutes in judging sustainability disclosures and the business practices and plans that underlie them. Most companies will therefore have some flexibility in formulating the extent of their sustainability disclosures at this stage; however, that flexibility will likely diminish in future years if companies postpone making such disclosures.
All companies should focus their sustainability disclosures on those topics that represent their key risks and opportunities that could impact their ability to create value over the long term. The BlackRock announcements may have the most impact on companies in which BlackRock is an investor, but all US public companies should take note of this development. US public companies should be assessing their sustainability disclosures and evaluating whether it is appropriate to make any changes to enhance these disclosures or to incorporate SASB or TCFD frameworks into their disclosure considerations. The appropriate sustainability approach for a US public company will vary widely depending on its particular characteristics, circumstances and shareholder base. For a discussion of some of these factors, see our survey on sustainability disclosure, available here.
1 The BlackRock announcements are in two letters publicly available here and here. SASB and TCFD are nonprofit organizations that have developed frameworks for reporting on sustainability (for more information on SASB, see here; for more information on TCFD, see here).
2 See https://www.blackrock.com/sg/en/about-us
3 BlackRock currently publishes annual reports on its voting and engagement statistics. See BlackRock’s 2019 Annual Voting and Engagement Statistics, available here, and BlackRock’s 2019 Investment Stewardship Annual Report, available here.