ESG Policies
1. Please provide your ESG-related policies.
BlackRock’s role is to offer choice to help meet our clients’ objectives, transparency into how those choices could impact portfolios, and our research-based perspective on how structural trends could impact asset prices and investments over time. We continue to innovate for and with clients. As a result, our policy is to work with clients to help them meet their unique investment goals and objectives. For more information on how we approach sustainability as a fiduciary, please visit: https://www.blackrock.com/corporate/literature/whitepaper/blackrock-approach-to-sustainability.pdf.
Our firmwide ESG integration statement details BlackRock’s approach to integrating environmental, social and governance data or information into our firmwide processes, and outlines the foundation, ownership, and oversight mechanisms which underpin our approach. To read more, please visit: https://www.blackrock.com/corporate/literature/publication/blk-esg-investment-statement-web.pdf.
2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.
Yes. Sustainable investing and ESG factors are integrated into all our active investment portfolios and in various forms across BlackRock’s investment platform.
For more details, kindly refer to our ESG Statement given to question 1 above.
3.a. Are you a signatory to the UNPRI?
Yes. BlackRock has been a signatory to the United Nations supported Principles for Responsible Investment (PRI) since 2008. The PRI is an independent nonprofit that encourages investors to use responsible investment to enhance returns and better manage risks. For more information, please visit the below webpage: https://www.blackrock.com/corporate/sustainability/pri-report.
3.b. If you are signatory to other coalitions, please list them.
BlackRock is member of several industry associations, including those that are related to sustainability and the transition to a low-carbon economy, so that we can participate in dialogue with governments, companies, and financial institutions on matters important to many of our clients. By being part of these forums, we are able to represent clients’ interests and engage in conversations on their behalf.
We have made it clear that we do not coordinate our votes or investment decisions with any external group or organization.
As an ordinary course of business, BlackRock reviews all its external memberships on a periodic basis. The firm joins and leaves many working groups and initiatives based on their cadence. The list below reflects updated organizations and initiatives as of 30 June, 2023. Please note: this list is not exhaustive.
3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.
Please see our response below.
2022 TCFD Report: BlackRock’s Taskforce on Climate-Related Financial Disclosures (TCFD) report provides a comprehensive overview of our approach to managing climate risk.
2022 SASB Disclosure: Our firmwide Sustainable Accounting Standards Board (SASB) sustainability disclosure for 2022.
4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?
ESG Oversight
Board oversight
BlackRock’s Board engages with senior management on near- and long-term business strategy and reviews management’s performance in delivering on BlackRock’s framework for long-term, financial value creation on behalf of clients. Sustainability, including climate-related issues is a critical component of the firm’s overall business strategy and the objectives of senior management over which the Board has oversight.
The Nominating, Governance & Sustainability Committee of the Board ("NGSC”) oversees investment stewardship, public policy, corporate sustainability, and social impact activities. The NGSC periodically reviews corporate and investment stewardship-related policies and programs, as well as significant publications relating to environmental (including climate), social, and other sustainability matters.
BlackRock’s Board is responsible for overseeing risk management activities. The Risk Committee of the Board (“Risk Committee”) assists the Board in overseeing, identifying, and reviewing enterprise, fiduciary, and other risks, including those related to climate and other sustainability risks, that could have a material impact on the firm’s performance.
Management oversight
BlackRock’s senior management oversees progress towards BlackRock’s strategic objectives, including climate- and sustainability-related objectives. The below management committees that share responsibility for management of various climate and other sustainability-related risks and opportunities.
- Global Executive Committee: Led by the CEO and consisting of BlackRock’s senior leadership team, the GEC sets the strategic vision and priorities of the firm and drives accountability at all levels. It is actively involved in the development of, and receives updates on, BlackRock’s sustainability strategy.
- Investment Sub-Committee of the GEC: Oversees investment process consistency across the firm’s investment groups. Members include the Chief Risk Officer, and the global heads or sponsors of all major investment divisions. It oversees ESG integration in BlackRock’s firmwide processes.
Other
BlackRock employs a three lines of defense approach to managing risks, including ESG risks, in client portfolios.
- BlackRock’s investment teams and business management are the primary risk owners, or first line of defense.
- BlackRock’s risk management function, the Risk and Quantitative Analysis (RQA) group is responsible for BlackRock’s Investment and Enterprise risk management frameworks and serves as a key part of the second line of defense along with BlackRock Legal & Compliance. RQA evaluates investment risks, including financially material ESG risks, during regular reviews with portfolio managers. This helps to ensure that such risks are understood, deliberate, and consistent with client objectives, complementing the first-line monitoring. RQA also has a dedicated Sustainability Risk group that partners with risk managers and businesses to oversee sustainability risk across the platform.
- The third line of defense, BlackRock’s Internal Audit function, operates as an assurance function. The mandate of Internal Audit is to objectively assess the adequacy and effectiveness of BlackRock’s internal control environment to improve risk management, control, and governance processes, including those relevant to sustainability.
5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.
Enhancing the transparency of sustainable characteristics for all products is a key priority for BlackRock. Today, BlackRock products (regardless of sustainability objectives) have the following data publicly available on our websites, where sufficient and reliable data is available:
- Sustainability Characteristics provide investors with specific non-traditional metrics. Alongside other metrics and information, these enable investors to evaluate funds on certain environmental, social and governance characteristics.
- Business Involvement metrics can help investors gain a more comprehensive view of specific activities in which a fund may be exposed through its investments.
- ESG integration statement for the fund. Unless otherwise stated in Fund documentation or included within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is considered as part of the overall investment process.
- Regulatory disclosures, such as for SFDR.
- Implied Temperature Rise (ITR), where sufficient and reliable data is available. The ITR metric incorporates both current emissions intensity and forward-looking assessments of projected emissions to produce a temperature indication, expressed in half-degree Celsius bands. ITR can help shed light on whether indexes and portfolios are progressing toward the temperature goal of the Paris Agreement, which calls for countries to limit global warming to well below 2°C, and ideally 1.5°C.
2022 TCFD Report: BlackRock’s Taskforce on Climate-Related Financial Disclosures (TCFD) report provides a comprehensive overview of our approach to managing climate risk.
2022 SASB Disclosure: Our firmwide Sustainable Accounting Standards Board (SASB) sustainability disclosure for 2022.
To access latest thought leadership from BlackRock Investment Institute on sustainable and transition investing, please visit this website.
6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?
BlackRock’s firmwide ESG Integration Statement applies across BlackRock’s investment divisions and investment teams and is reviewed at least annually to reflect changes within our business.
Specifically, for the Fixed Income Global Opportunities (FIGO) fund, there is nothing that would cause us to disregard ESG issues in our investment/analysis decisions.
Climate
7. Describe how you identify, assess, and manage climate-related risks.
As an asset manager, BlackRock’s focus on understanding the transition is driven, as always, by the firm’s role as a fiduciary. BlackRock’s investment approach is informed by three principles: client choice, performance, and research. BlackRock starts by understanding the client’s investment objectives and provides choice to meet their needs, seeks the best risk-adjusted financial returns within the mandate clients provide, and underpins its work with research, data, and analytics. The money BlackRock manages is not its own – it belongs to the firm’s clients, many of whom make their own asset allocation and portfolio construction decisions.
As a fiduciary, BlackRock considers relevant, material investment risks and opportunities for its clients, including ones created by the transition to a low-carbon economy. When seeking the best financial returns for its clients, including ones created by the transition to a low-carbon economy. When seeking the best financial returns for its clients, the firm relies on a research-based view of economic developments, including how the low-carbon transition is likely to unfold in practice over time and the extent to which such changes are priced into financial markets.
BlackRock discloses associated climate-risks and opportunities in its 2022 TCFD report. Please review BlackRock's 2022 TCFD Report in its entirety for full understanding of risks and management of these.
8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.
BlackRock discloses associated climate-risks and opportunities in its 2022 TCFD report. Please review BlackRock's 2022 TCFD Report in its entirety for full understanding of risks and management of these. Specifically, for the opportunities, we’re seeing increased demand for sustainable investment products and Aladdin (software and technological support), and operating efficiencies to benefit from. From our research, the risks are expansive and include market, product, regulatory, reputational, and physical risks.
9. Describe the resilience of your investment strategy, taking into consideration different climate-related scenarios.
The strategy defines ESG integration as the practice of incorporating material ESG information into investment decisions to enhance risk-adjusted returns. To us, integrating ESG information, or sustainability considerations, should be part of any robust investment process and means adapting research and investment processes to account for additional sources of risk / return that are explained by ESG information.
As long-term investors, we are mindful of the heightened risk of physical climate risk which poses a risk to our client’s assets. By using probabilistic projections of climate change, we are identifying exposure of our client’s assets to unpriced climate change risks. These projections are implying a whole host of first and second order impacts – ranging from physical infrastructure damage and increased energy demand to changes in crop yields. Using these first and second order impacts, we are aiming to contextualize financial risks for some of the longer-term assets.
10. Do you track the carbon footprint of portfolio holdings?
Yes
If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.
BlackRock is focused on providing greater transparency to our clients particularly around the ESG and temperature characteristics of their portfolios. All public passive funds publish an Implied Temperature Rise metric for our public equity and bond funds, for markets with sufficiently reliable data.
Significant research is underway into temperature alignment and sectoral pathways which will aim to provide a proprietary, intellectually honest, and industry-leading temperature alignment methodology. This work is led by a cross-sectional team of data scientists, climate specialists, programmers, and investors from across the firm.
These efforts in transparency and reporting build on the ESG reporting efforts we have undertaken in the last few years. Our website fund pages contain information on a range of sustainability characteristics such as Weighted Average Carbon Intensity, ESG Quality score, a fund ESG rating, and business involvement metrics for the Funds. This data is available for all BlackRock mutual funds and ETFs globally, through our website and fund webpages.
To further enhance this reporting at the Fund level we also included ESG integration statements on product pages and, where possible, engagement and voting statistics.
We are also working to deliver this data to our institutional or separate account clients through their regular reporting. To do this we leverage the ESG and Carbon reporting template that we have been providing clients on request.
Standard ESG & Carbon Reporting Template
A standard ESG & Carbon Exposure report is also available to clients upon request. This report helps our clients understand the sustainability characteristics of their portfolios and run a carbon footprint relative to a benchmark.
Aladdin supports BlackRock’s ESG and Carbon reporting capabilities at a portfolio level based on underlying security ESG and Carbon data sourced from MSCI. The report provides portfolio exposure analysis, with a view of ESG and carbon emission scores by sector, ESG Ratings by market value and decomposition of Active Risk by ESG Ratings.
We have provided a sample template of an ESG and carbon exposure report below.
BlackRock continually seeks to increase the flexibility and scope of our reporting capabilities to meet the demands of our clients and the evolving nature of the ESG data landscape. In 2022 this includes establishing an internal metric approval and usage process for client reporting whilst also enhancing our ability to produce variations of reports for varied client segments. This reporting template development is overseen by a governance process to aid consistency and appropriacy of metrics across our varied investment teams.
11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.
BlackRock reports GHG emissions for Scope 1, 2 and certain categories of Scope 3. Please see BlackRock’s 2022 GHG Emissions Report.
In operating its own business, BlackRock pursues an environmental sustainability strategy that is focused on reducing GHG emissions and increasing the efficiency and resiliency of its operations by utilizing low-carbon energy solutions such as renewable electricity to power our operations and using sustainable aviation fuel (“SAF”), where possible.
Underpinning BlackRock’s environmental strategy, the firm is working to achieve the following science-aligned emissions reduction goals (relative to a 2019 baseline): (i) 67% reduction of Scope 1 and 2 emissions by 2030; (ii) 40% reduction in Scope 3 business travel emissions by 2030; and (iii) engage suppliers representing 67% of the firm’s emissions (estimated based on spend) to set science-aligned goals by 2025.
Additional insight into BlackRock’s environmental strategy can be found in BlackRock's 2022 TCFD Report. Please also see BlackRock’s environmental sustainability website for further insights.
12. For the mandate you manage for Queen’s, what percentage of equity holdings (if applicable) have credible net zero commitments?
Given that this is a fixed income-based strategy, the fund has total -0.2% Notional Market Value (NMV) % exposure to equities as of 6/30/2022, with 0.2% NMV exposure to equities that meet the Science Based Targets initiative (SBTi) emissions targets.
13. How do you assess the credibility of a company’s emission reduction targets?
Public disclosures allow investors to evaluate how a company considers climate-related risks and opportunities for the business and to track progress against management’s stated goals.
We encourage disclosures aligned with the reporting framework developed by the Task Force on Climate-related Financial Disclosures (TCFD). We welcome efforts by the International Sustainability Standards Board (ISSB) to develop a global baseline of sustainability reporting standards. We believe that a global baseline, on which policy makers in different jurisdictions can build to meet their policy objectives, may help increase the quality of information available to investors, while reducing the reporting burden on companies. The ISSB is building on many of the reporting frameworks developed to date, particularly the pillars of the TCFD—governance, strategy, risk management, and metrics and targets—and the industry-specific metrics identified by the Sustainability Accounting Standards Board (SASB). In our experience, this framing helps companies disclose how they identify, assess, manage, and oversee a variety of material sustainability-related risks and opportunities in their business models.
Consistent with the TCFD, investors have greater clarity—and ability to assess risk—when companies detail how their business model aligns to a range of climate-related scenarios, including a scenario in which global warming is limited to well below 2°C, and considering global ambitions to achieve a limit of 1.5°C.
We are better able to assess preparedness when companies disclose short-, medium-, and long-term targets, ideally science-based where these are available for their sector, for scope 1 and 2 greenhouse gas emissions (GHG) reductions and to demonstrate how their targets are consistent with the long-term financial interests of their shareholders.
As investors, it is also helpful to be able to evaluate companies’ assessments of their emissions across their value chain, or scope 3 emissions, where appropriate, and efforts to reduce them over time. A growing number of companies have started disclosing scope 3 reduction targets, which provide important insight into the full carbon component of companies’ goods and services. This further allows investors to evaluate the long-term risks to and resilience of companies’ value chains.
However, we fully recognize that the methodology, accounting, assurance, and regulatory landscape for scope 3 emissions is complex, varied, and still evolving—double counting is also a legitimate concern. Accordingly, we understand that the scope 3 disclosures that companies are able make will necessarily be on a good faith and best-efforts basis. We believe regulators can support these efforts by requiring disclosure from public and private companies, while providing safe harbor protections in case companies need to restate their scope 3 emissions in the future.
Where companies utilize carbon offsets to advance carbon neutrality goals, we look for disclosures detailing how the offsets are evaluated and assessed for their permanence and additionality, as well as for leakage. We see carbon offsets as a complement to, not a replacement for, companies’ substantive and sustained long-term emissions reduction plans. These instruments should not detract from or disincentivize efforts to reduce emissions.
Please read more in our commentary on Climate-related risk and the energy transition here.
14. What forward-looking metrics do you use to assess an investment’s alignment with global temperature goals?
As mentioned above, enhancing the transparency of sustainable characteristics for all products is a key priority for BlackRock. Today, BlackRock products (regardless of sustainability objectives) have the following data publicly available on our websites, where sufficient and reliable data is available:
- Sustainability Characteristics provide investors with specific non-traditional metrics. Alongside other metrics and information, these enable investors to evaluate funds on certain environmental, social and governance characteristics.
- Business Involvement metrics can help investors gain a more comprehensive view of specific activities in which a fund may be exposed through its investments.
- ESG integration statement for the fund. Unless otherwise stated in Fund documentation or included within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is considered as part of the overall investment process.
- Regulatory disclosures, such as for SFDR.
- Implied Temperature Rise (ITR), where sufficient and reliable data is available. The ITR metric incorporates both current emissions intensity and forward-looking assessments of projected emissions to produce a temperature indication, expressed in half-degree Celsius bands. ITR can help shed light on whether indexes and portfolios are progressing toward the temperature goal of the Paris Agreement, which calls for countries to limit global warming to well below 2°C, and ideally 1.5°C.
Diversity
15. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?
We welcome you to review our annual DEI report for a direct response to your inquiry: https://www.blackrock.com/corporate/literature/fact-sheet/dei-annual-report.pdf. Kindly review pages 93-94 for composition of our senior leadership, page 80 for details regarding BlackRock's Board of Directors and pages 8, 13, 26-27, 41 & 44-51 for details regarding diversity of perspectives and experiences.
Proxy Voting
16. What proportion of the time do you vote with or against management on shareholder resolutions, board appointments, and auditor appointments? What proportion of the time do you vote with or against management on ESG issues? How does this break down for climate, diversity, and remuneration issues?
BIS centers our stewardship work in corporate governance. In our experience, sound governance, in terms of both process and practice, is critical to the success of a company, the protection of shareholders’ interests, and long-term shareholder value creation. That is why board quality and effectiveness remain a top engagement priority and a key factor in the majority votes cast on behalf of clients. Similar to last year, our leading reasons for not supporting director elections — and management proposals more broadly — were governance-related: 1) lack of board independence, 2) lack of board diversity, 3) directors having too many board commitments and 4) executive compensation that was not aligned with company strategy or long-term performance.
Our voting in support of management was largely consistent with the prior year: globally we voted in support of ~ 90% of directors standing for election and for all items on the agenda at 56% of shareholder meetings.
This year, BIS voted in line with more of management’s recommendations in the Americas and EMEA, where companies have made significant progress on the governance and material sustainability-related matters that inform our voting. In the Americas, we were more supportive of directors as companies made substantial improvements in board diversity, which, in our experience, promotes diversity of thought and avoids “group think” in the board’s exercise of its responsibilities to advise and oversee management; lack of board diversity was the reason we did not support the election of 2.5% of directors (2.9% last year). In EMEA, we were more supportive of management as companies adapted their remuneration policies and disclosures to align better with their long-term shareholder returns in the prolonged post-COVID economic environment, not supporting 5.5% of directors due to concerns about executive compensation (6.9% last year). In both the Americas and EMEA, we were also more supportive of companies with material climate risk in their business models as they improved their climate action plans and disclosures, voting to signal concern at 67 companies compared to 177 last year (please see the “Climate and natural capital” section of this report for additional details).
In APAC, director independence and board performance remained significant governance concerns for minority shareholders like our clients, and led us to not support the election of 8.4% of directors (6.2% last year) in the region for a lack of independence.
In addition, in 2022 BIS strengthened our focus on board gender diversity in several major markets in Asia, including Japan, Hong Kong, mainland China, and Singapore in line with local market regulations and initiatives. For example, as explained in our proxy voting guidelines for Hong Kong securities, BIS generally would not consider single-gender boards to be diverse, especially as other aspects of board diversity are often also lacking in these markets. We encourage companies in Hong Kong to have at least one female board director and may not support the election of director(s) where this is not the case. In APAC, as we phased in this policy, we did not support the election of 155 directors at 131 companies compared to 18 directors at 17 companies in 2021 due to the lack of gender diversity on their boards.
17. What proportion of all independent ESG shareholder resolutions do you support?
BIS takes a case-by-case approach to our voting on shareholder proposals. When assessing them, we evaluate each on its merit, with a singular focus on its implications for long-term financial value creation. We consider voting on well-crafted shareholder proposals focused on issues material to a company’s business model to play a useful role in the stewardship toolkit. We also check for consistency between the specific request formally made in the proposal and the proponents’ related communications on the issues. Without exception, our decisions are guided by our role as a fiduciary to act in our clients’ long-term financial interests.
BIS is more likely to support shareholder proposals that are consistent with our request to companies to deliver information that helps us to understand the material risks and opportunities they face, especially where this information is additive given the company’s existing disclosures. In some cases, we may support business-relevant shareholder proposals that we believe address gaps in a company’s approach to material business risks.
We do not believe it is appropriate for minority shareholders such as BlackRock to seek to direct companies on how they should manage their business. In our view, it is the responsibility of management, with input from the board, to determine, for example, what specific emissions targets they should set and meet, the employee benefits they should offer to be competitive, or the extent of their political lobbying.
We are unlikely to support shareholder proposals that, in our assessment, are intended to micromanage companies. This includes those that are unduly prescriptive and constraining on the decision-making of the board or management, call for changes to a company’s strategy or business model, or address matters that, based on our observations, are not material to how a company delivers long-term shareholder value.
The majority (59%) of shareholder proposals that BIS votes on are related to governance. In 2022, BIS supported 69 governance-related shareholder proposals out of the 468 on which we voted (about 14%).
We supported about 20% of the environmental and social-related shareholder proposals that we voted on; in absolute terms, this reflects support for 64, out of 325, environmental and social proposals (84 out of 184 last year). Average market-wide support was about 24%.
18. What proportion of remuneration packages do you vote in favour of? In your view, is the current level of executive remuneration too high, too low, or about right? How is this view reflected in your voting record on remuneration?
Consistent with our support last year, BIS supported nearly 80% — or 11,894 out of the 15,4564 — compensation-related management proposals put to a shareholder vote in 2022, globally. Compensation-related proposals include Say on Pay proposals, remuneration policy proposals, proposals to approve new or revised incentive plans, and other compensation-related proposals.
In EMEA, BIS supported management recommendations on 72% of proposals — or 3,826 out of 5,295 — to approve compensation policies in 2022 (70% supported in 2021). In general, companies improved their explanations of how short- and long-term incentive plans complement one another and are effective in rewarding executives who deliver long term financial value. However, we noted several companies continued to tie a meaningful portion of incentive pay exclusively to increases in stock price that may be transitory in nature. We believe a narrow focus on short-term stock price or a company’s profit may be inconsistent with, or even detrimental to, long-term financial value creation and thus BlackRock’s clients’ interests.
One example is our long-standing concerns about the use of share price growth as a performance measure at the Ocado Group Plc (Ocado), a UK-based online grocery retailer. Share price growth underpinned both the Growth Incentive Plan, which ran from 2014 to 2019, and the Value Creation Plan (VCP) that was introduced in 2019. In 2022, the company extended the life of the VCP by three years (to 2025) and increased the size of the pool of shares available to be awarded under the plan. At Ocado’s May 2022 AGM, BIS determined it was in our clients’ long-term economic interests not to approve the extension of the VCP or the renewed Remuneration Policy of which it formed a significant part. BIS also did not support the election of members of the remuneration committee to reflect our concerns about remuneration practices at the company.
In the Americas, BIS supported management recommendations on 82% of proposals — or 4,388 out of 5,375 — to approve compensation policies in 2022 (85% supported in 2021). Compensation-related proposals in this region consist primarily of Say on Pay proposals and proposals to approve new or revised incentive plans. For example, at Copart Inc. (Copart) – a U.S. online car auction company – and Monolithic Power Systems (Monolithic) – a leading U.S. semiconductor company we identified concerning practices in terms of front-loading compensation and performance metrics, respectively.
In 2022, Copart introduced a co-CEO governance structure, awarding the new co-CEO a frontloaded grant of approximately U.S. $30 million upon his hiring. However, the company’s disclosures lacked a fulsome explanation regarding how having two CEOs – and their corresponding pay structures – support the company’s long-term performance and is aligned with shareholders’ interests.
In addition, the company’s disclosures provided minimal detail about the short vesting periods of the co-CEO’s long-term incentive plans. In our view, the vesting schedules and holding periods associated with incentive plans should facilitate a focus on sustained long-term financial value creation. As a result, BIS did not support the Say on Pay proposal nor the election of two members of the compensation committee at Copart’s December 2022 AGM.
In the case of Monolithic, the executive compensation program relied on relatively short-term performance goals within the long-term plan, in addition to a highly qualitative sustainability-related goal which focused on process rather than a rigorous performance metric. While the company has publicly stated that developing efficient power solutions is a main driver of Monolithic’s business strategy, when analyzing the company’s disclosures, we found it difficult to understand the board’s approach to executive compensation in light of the company’s stated strategy. Additionally, in the context of the substantial payout opportunity, the program lacked risk mitigating policies such as a clawback policy, should any awards be made on the basis of fraudulent or inaccurate financial measures. As a result, BIS did not support the Say on Pay proposal at Monolithic’s June 2022 AGM.
In APAC, BIS supported management on 77% of proposals – or 3,680 out of 4,786 – to approve compensation policies in 2022 (80% in 2021). Whilst the level of fixed compensation is not considered to be particularly controversial in the majority of Asian companies, disclosure of performance metrics as well as the structure of equity-based incentive schemes can be an issue. As in other markets, we look to companies to provide detailed disclosures on their approach to pay and may not support management in our voting if pay policies or disclosures are not aligned with shareholders’ interests.
19. Have you ever co-filed an ESG-related shareholder resolution? If so, how many and with what frequency?
No. BlackRock does not file shareholder proposals.
In most markets in which BlackRock invests on behalf of clients, shareholders have the right to submit proposals to be voted on by shareholders at a company’s annual or extraordinary meeting, as long as eligibility and procedural requirements are met. The matters that we see put forward by shareholders address a wide range of topics, including governance reforms, capital management, and improvements in the management or disclosure of sustainability-related risks.
BlackRock is subject to certain requirements under antitrust law in the United States that place restrictions and limitations on how BlackRock can interact with the companies in which we invest on behalf of our clients, including our ability to submit shareholder proposals. As noted above, we can vote, on behalf of clients who authorize us to do so, on proposals put forth by others.
20. Have you ever voted against a director for explicitly ESG-related reasons? If so, why? If not, would you consider doing so in the future?
- We might not support the election of directors or other management proposals; or
- We might support a shareholder proposal.
Please read examples of this in our 2022 Annual Stewardship Report.
Engagement
21. How many companies do you engage with? What proportion of your engagements focus on environmental and social issues? What are your engagement goals? Are these goals outcome/action- based (e.g. decreases in emissions or increases in number of women on the board) or means-based (reporting on emissions or number of women on the board)?
Engagement is core to our stewardship efforts as it provides us with the opportunity to improve our understanding of a company’s business and the risks and opportunities that are material to long-term financial performance, including material sustainability-related risks and opportunities. Engagement may also inform our voting decisions for those clients who have given us authority to vote on their behalf.
In 2022, companies continued to face complex strategic and operational challenges, due to persistent geopolitical and socioeconomic factors. In our engagement with company boards and management, BIS acknowledged these headwinds and continued to encourage a long-term focus.
BIS primarily engages public companies on behalf of index strategies, and we make our company analysis and engagement meeting notes available to BlackRock’s active portfolio managers. When BIS engages a company, we do so from the perspective of a long-term investor and consistent with the policies reflected in the BIS Global Principles and regional voting guidelines. We seek to have regular and continuing dialogue with investee company executives and, as necessary, board directors on issues related to governance and business practices aligned with long-term financial value creation. Engagement provides us an opportunity to hear directly from company boards and management on how they believe their actions are aligned with durable, long-term financial value creation. Similarly, it is an important mechanism for providing feedback on company practices and disclosures, particularly when our experience leads us to believe a company is not appropriately managing material risks that could potentially impact financial returns.
Our industry-leading, specialist team of experienced stewardship analysts conducts year-round engagements with thousands of companies across developed and emerging markets globally. This year, BIS conducted 3,886 engagement meetings (3,645 last year) with 2,588 unique investee companies (2,357 last year). We continue to focus our engagement on a consistent set of five priorities that, in our experience, are essential to the long-term financial performance of our clients’ investments: board quality and effectiveness; strategy, purpose, and financial resilience; incentives aligned with financial value creation; climate and natural capital; and company impacts on people.
In our engagements, we encourage companies to provide comprehensive disclosures on their long-term strategy, the milestones to delivering it, and the governance and operational processes that underpin their businesses and long-term financial performance. We are encouraged by the significant progress made in 2022, at a global and market level, towards developing a global baseline set of sustainability reporting standards. Once such standards are realized, we are hopeful that the quality of information —both data and narrative — available to investors will improve, supporting more efficient capital markets. Corporate disclosures are a key input into our voting and engagement activities.
22. What is your policy around the escalation of engagement; how and why might this happen and what is the ultimate tool you might use (e.g. voting against board re-election, etc.)?
One size does not fit all and engagement is not necessarily about effecting change. Each company and issue is assessed individually, and many factors will determine how BIS assesses a company’s responsiveness to feedback from investors, including BlackRock. When engaging boards and management teams, BIS discusses implementation and oversight of long-term corporate strategy, robust operating practices, and enterprise risk management. BIS also discusses progress against identified targets and metrics so that we, as investors, can better understand how material risks are mitigated and opportunities are realized. That said, BIS does not believe it is appropriate for minority shareholders such as BlackRock to seek to direct companies on how they should manage their business. In our view, it is the responsibility of management, with input from the board.
As mentioned above, when we determine it is in our clients’ financial interests to signal concern to companies through voting, we do so in two forms:
- We might not support the election of directors or other management proposals; or
- We might support a shareholder proposal.
Not supporting the election of directors is the voting signal of concern BIS most frequently employs since it is a globally available mechanism.
For high-profile and certain non-routine voting matters, BIS has a vote escalation process that allows analysts and regional heads to raise these for further review by committees of senior BIS leaders and the BIS advisory committees. Examples of high-profile votes include shareholder activist situations, mergers, executive compensation proposals, certain environmental- and social-focused shareholder proposals, among others.