Investment giant BlackRock expects to support fewer climate-related shareholder proposals during the upcoming 2022 proxy voting season compared to last year, as the firm says that many proposals have become overly prescriptive or constraining, and do not align with long-term value creation goals.
In an update published by BlackRock Investment Stewardship (BIS), the firm noted that there has been an increase in ESG-focused proposals of “varying quality” this year, following revised SEC guidance on shareholder proposals broadening the scope of permissible proposals. Additionally, BlackRock said that its decisions are informed by companies’ near-term needs to invest in multiple sources of energy driven by shifting energy dynamics following the Russian invasion of Ukraine.
The firm highlighted a series of themes that have emerged for this year’s proposals, including ceasing financing and decommissioning assets for traditional energy companies, aligning business models to a specific 1.5⁰C climate scenario, setting absolute Scope 3 emissions targets, among others. BlackRock said that many of these overly prescriptive proposals are not receiving strong shareholder support, and that major proxy advisors are recommending against supporting them.
BlackRock has emerged as a leading voice in the investment community on climate issues, with Chairman and CEO Larry Fink’s high-profile annual letters to CEOs over the past several years highlighting BlackRock’s increasing focus on sustainability and climate action in the firm’s investment process, the need for consistent and high quality data and climate disclosure, and the increasing impact of companies’ ability to navigate the transition on capital allocation decisions.
Earlier this year, BIS released its engagement priorities for 2022, indicating that BlackRock aims to focus its efforts over the coming year on areas including climate, biodiversity and human rights, in addition to board quality and company strategy. Specific climate priorities listed included encouraging companies to report on the alignment of their business models with scenarios that keep global warming well below 2°C and moving toward net zero in 2050, and to help investors understand their approach through disclosures on scope 1 and 2 emissions.
In the new publication, BlackRock outlined the types of climate proposals it would support, including those that encourage companies to provide information on their material climate risks and opportunities, such as details on climate action plans and the expected impact of the energy transition on business models and financial performance, backed by Scope 1 and 2 emissions data, and emissions reduction targets. BlackRock also encourages disclosure on Scope 3 emissions, but recently said that it does not currently consider Scope 3 reporting as essential to its support for directors, given issues such as methodological complexity, regulatory uncertainty, and concerns about double-counting.
BlackRock also note that it has seen progress by many companies in energy transition planning and actions, as well as enhanced disclosure on how companies are engaging on policy matters, enabling the firm to become more supportive of management in its voting at shareholder meetings.
In the 2021 proxy season, BlackRock stated that it supported 47% of environmental and social shareholder proposals, with many focused on addressing material business risks, and providing information useful to assessing companies’ ability to create long-term values.
With this year’s shift to more prescriptive or constraining proposals, BIS wrote:
“The nature of certain shareholder proposals coming to a vote in 2022 means we are likely to support proportionately fewer this proxy season than in 2021, as we do not consider them to be consistent with our clients’ long-term financial interests.”