The outside pressure has been on. As reported by Bloomberg, "[e]nvironmental advocates in cities including New York, Miami, San Francisco, London and Zurich targeted BlackRock for a wave of protests in mid-April, holding up images of giant eyeballs to signal that 'all eyes' were on BlackRock's voting decisions." Of course, protests outside of the company's offices by climate activists are nothing new. But why this pressure on BlackRock? BlackRock and its CEO, Laurence Fink, have played an outsized role in promoting corporate sustainability and social responsibility, announcing, in 2020, a number of initiatives designed to put "sustainability at the center of [BlackRock's] investment approach." (See this PubCo post.) Yet, BlackRock has historically conducted extensive engagement with companies and, in the end, voted with management much more often than activists preferred; for example, in the first quarter of 2020, the company supported less than 10% of environmental and social shareholder proposals and opposed three environmental proposals. As a result, as reflected in press reports like this one in the NYT, activists have reacted to the appearance of stark inconsistencies between the company's advocacy positions and its proxy voting record. Even a group of Democratic Senators highlighted that inconsistency in this October 2020 letter, characterizing the company's voting record on climate issues as "troubling and inconsistent." But that impression may be about to change. In an interview with Reuters, BlackRock's global head of investment stewardship since 2020 revealed that the company is "'accelerating the pace of our stewardship activities; resulting in more engagement and more voting, reflecting heightened expectations, which . are just a function of the urgency of some of the issues.'" Indeed, in the first quarter of 2021, BlackRock supported 12 of 16 environmental and social shareholder proposals.

As reflected in its Q1 2021 Investment Stewardship Report, BlackRock has begun to use its considerable clout to hold more and more companies accountable, and that's particularly true with regard to environmental and social issues. In the first quarter of 2021, it supported 75% of environmental and social shareholder proposals, voting in favor of eight environmental proposals globally. For 2021, the company said, it has "reinforced our expectations of boards in their oversight and support of management in ensuring that companies have a sustainable long-term business model. We have also raised our expectations of companies in terms of their preparedness for the energy transition. As highlighted in our commentary, Climate risk and the transition to a low-carbon economy, we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2°C, consistent with a global aspiration to reach net zero greenhouse gas (GHG) emissions by 2050."

Those votes on shareholder proposals may reflect a broader shift in attitude. BlackRock indicates in this new stewardship report that it has adopted a "refreshed approach" to shareholder proposals: "Where we agree with the intent of a shareholder proposal addressing a material business risk, and if we determine that management could do better in managing and disclosing that risk, we will support the proposal. We may also support a proposal if management is on track, but we believe that voting in favor might accelerate their progress." That new approach contrasts sharply with its previous approach, under which BlackRock said that it may vote in favor of proposals that address material issues, that it believes "need to be remedied urgently and that, once remedied, would help build long-term value. We may support proposals seeking enhanced disclosure if the information requested would be useful to us as an investor and if management has not already substantively provided it. To gain our support, the requests made in a shareholder proposal should be reasonable and achievable in the time frame specified."

The change at BlackRock is also particularly evident in votes against directors. In 2020, BlackRock identified 244 companies that were not making adequate progress on climate risk. It took voting action against 53, or 22% and put the remaining 191 companies "on watch" for potential voting action in 2021. In all of 2020, BlackRock voted against 64 directors and 69 companies because of inadequate management and reporting of climate-related risks. In contrast, in the first quarter of 2021, BlackRock voted against 53 directors and 47 companies, "demonstrating we are holding more directors accountable for inadequate progress on climate. We expect this number to increase meaningfully as we go through the peak proxy season, which runs March through June in most markets."

In its Q1 2021 report, BlackRock said that, for the quarter, it had conducted almost 1,000 engagements with over 800 companies (a 24% increase over the same period last year), including 712 engagements on environmental issues (a 52% increase over the same period last year). Engagements regarding governance and social issues were consistent with last year. In describing its approach, BlackRock indicated that it consistently focuses on "the quality of board and executive leadership, given our view that strong governance from the top is key." As a result, BlackRock's engagements focus "most heavily on governance-related risks, followed by environmental and social factors." In addition to the votes against 53 directors and 47 companies for climate-related concerns noted above, BlackRock also voted against nine for inadequate sustainability disclosure (failure to align with SASB) and seven for inadequate progress on social issues. And the company voted against management on one or more proposals at 35% of shareholder meetings, compared to 30% in first quarter of 2020.

Climate was not the only issue on which BlackRock increased its expectations. BlackRock also focused on the impact of companies' business practices on other stakeholders, including the workforce, suppliers, customers, communities, Indigenous peoples and others that could be exposed to material risks as a result of those practices.


It's interesting to note that there is almost no mention in the report on shareholder proposals for political spending and lobbying disclosure. BlackRock classifies proposals related to political spending and lobbying policies as governance proposals. With regard to its record on governance proposals, BlackRock reports that, in Q1 2021, it voted against 61% of the proposals, abstained on 3% and voted in favor of 37%, while in Q1 of 2020, it voted against 77% of the proposals and in favor of 23%. But there's no data showing how many of these proposals related to political spending. In a December 2020 commentary, BlackRock asserted that, with regard to shareholder proposals regarding disclosure of political spending or lobbying activities, where it "notes material inconsistencies with stated public policy priorities, we may support a shareholder proposal requesting additional disclosure or explanation for such inconsistency. In making our assessment, [BlackRock] will review information disclosed by the company, as well as third-party research for industry peer comparison."

However, Pensions & Investments reports, in a late January 2021 letter to BlackRock Chairman and CEO Laurence Fink, almost "two dozen fiduciaries of public retirement plans and others expressed concern over BlackRock's internal practices and stewardship stances on companies' political spending and lobbying activity." While they appreciated the "evolution" of BlackRock's position as expressed in the December commentary, the letter was nevertheless critical of BlackRock's internal practices and lack of transparency about its own political spending, and also blasted BlackRock for a "historic failure to support efforts by other shareholders to promote greater transparency regarding political spending and lobbying at S&P 500 companies, including voting against all 48 such proposals in the 2020 shareholder season. In those cases, eight proposals would have received majority support if BlackRock had supported them and 19 would have received support of a majority of shareholders if both BlackRock and Vanguard had supported them, they said." [Italics added.] The letter chastises BlackRock for its failure to support these proposals and for shielding "issuers from much-needed transparency and accountability on policy influence activities that impact sustainable value creation. While we welcome BlackRock's recognition of the risks to investors from misaligned corporate political spending in its December commentary, BlackRock's updated proxy voting guidance from December 2020 still does not offer sufficient clarity to clients and issuers on the standards to which it will hold boards on political spending disclosure." Without transparency, the letter contends, how would investors be able to "identify and hold boards accountable for these misalignments"? The letter finally asks for BlackRock's commitment to "supporting shareholder proposals calling for greater disclosure, against those board members charged with the responsibility for overseeing such spending who have failed to do so."

Among the selection of voting bulletins posted on BlackRock's website for 2021, there were three shareholder proposals asking for reports on corporate lobbying or political spending. BlackRock reported that it had voted in favor of all three proposals, indicating its support because for example, the company's disclosures of its political contributions and corporate lobbying activities were limited or simply to "underscore the importance of this subject and to encourage incremental improvements to the company's current political contributions and expenditures disclosure." Although we'll have to wait for further data and analysis to see how this issue fully plays out in 2021, the limited information posted certainly appears to reflect a shift.

Finally, BlackRock highlights two "noteworthy developments" related to its Q1 engagements on shareholder proposals: proposals requesting companies to perform racial equity audits and to provide for votes on climate action plans ("say on climate"). Although BlackRock will evaluate these proposals on a case-by-case basis, it suggested that these proposals "have merit at many of the companies at which they have been filed and are generally not unduly constraining for management."

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