The world’s biggest asset manager BlackRock rejected almost five times more board directors at companies, including oil giant, Exxon Mobil and conglomerate, Berkshire Hathaway, in its recent proxy voting season because of a failure to act on climate issues, a lack of diversity in the boardroom and for fat pay packets for bosses that laid off workers during the pandemic.
Details of BlackRock’s voting record, published on Tuesday, show it is taking a less lenient approach to corporate governance and flexing its muscle as a leading shareholder to boost standards.
Larry Fink, the chief executive of the group, which oversees assets of US$9.3 trillion, has pledged it will play an active role in addressing problems including climate change, racial injustice and gender inequality.
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In the past, critics have accused BlackRock of not doing enough, given its claims to be an advocate of environmental, social and governance standards.
The BlackRock Investment Stewardship (BIS) votes on behalf of the investors in its various funds. The asset manager said in is report that voting on the re-election of directors remains one of the most important ways that it can signal support for or concern about a board’s oversight of management.
The New York-based asset manager voted against 255 directors in the period ending 30 June, up from 55 a year before, according to the stewardship report.
“I think governance should always be at the core of this discussion, especially if we are talking about this ecosystem of listed companies and asset managers, particularly minority investors and companies,” Shinbo Won, BlackRock’s investment stewardship director in Singapore told Eco-Business.
Boards under the cosh for climate issues
The fund manager said that it held more than 2,300 engagements with company executives on climate and natural capital during the proxy year ending in June, nearly double held the previous year.
A thousand carbon-intensive companies where greater disclosure of climate risk is required have been identified by BlackRock which voted against 107 companies for inadequate sustainability reporting. It also rejected the management of 319 companies for climate-related reasons, compared with 53 in 2020.
The group acknowledged the “uneven climate-related political landscape” in developing markets and Asia.
The International Energy Agency (IEA) called on the world to end fossil fuel investments in its pathway to net zero carbon emissions by 2050 report released in May. The same day, the Australian government announced plans for a new US$460 million natural gas-fired power plant in what is emblematic of the challenges that lie ahead in getting the Asia Pacific region to help realise the IEA’s net-zero goal.
India’s environment secretary, Rameshwar Prasad Gupta, recently said that the country cannot prioritise or commit to eliminating greenhouse gas emissions without sufficient financing from richer nations to help offset the high cost of transitioning to clean energy. India is the world’s third-biggest emitter.
“The corporate dialogue around curbing GHG emissions [in developing markets and Asia] is at an earlier stage and engagement on climate risk and the energy transition is more nascent,” BlackRock acknowledged in its report.
“The reality is that in many developing countries, near term economic considerations around low-cost energy and employment still take precedence over the transition to a low-carbon economy,” it said.
Asia-Pacific under fire for inadequate independence, lack of diversity
In APAC, inadequate independence from management, significant stakeholders, or other related parties, was cited as the top reason for voting against a director(s) with the group voting against 1,448 directors at 819 companies. “We often have concerns with the balance of independence on boards in many Asian markets,” the report noted.
The board of directors are pivotal in the chain of accountability, Won said. “That is why we put so much focus on the board of directors. What kind of skills set and experience do they bring? Do they actually have oversight?”
Excessively long tenures in Asia have squeezed out the young and risk impairing a director’s independence, according to a report led by the Centre of Creative Leadership.
A lack of board diversity is also on the group’s radar. The manager said it voted against the re-election of 1,862 directors at nearly 1,000 companies globally because of a lack of board diversity. In Hong Kong, Singapore, and Malaysia, BlackRock voted against either the chair of the board or a member(s) of the nomination committee at companies with all-male boards.
While the report acknowledges that it is a “relatively nascent issue” the fund manager is urging companies in the region to better evaluate and encourage board diversity and equality.
“When disclosure is insufficient for us to assess board diversity — particularly in markets where we consider demographic diversity a priority, where we have been raising the issue, and where gender diversity remains inadequate — we typically vote against the re-election of members of the committee responsible for nominating directors,” the report said.
Strength in numbers
While BlackRock might have the reputational might to exert pressure on the companies it invests in, more could be done by other asset managers to do the same. “I think it is important that more asset managers out there are asking for access [to company boards/board of directors],” Won said.
“It is very important for the boards here in this region to understand that they need to engage in dialogue with their investors. It is their responsibility. We all look to them.”