BlackRock: taking foot off the pedal on climate change and resetting stakeholder capitalism

Power without responsibility? The passive fund industry wields substantial clout on the corporate landscape: $16tn of it, according to Morningstar. Now BlackRock, the biggest of them all, has given itself a pass on the knotty issue of climate change.

Pinpointing factors including the timeframe for transitioning from fossil fuels and war-inflated energy costs, the US-based fund manager says it will not support most of this year’s shareholder resolutions on the subject. Such proposals, the $10tn money manager reckons, are too extreme, too prescriptive or entail too much micromanaging.

This is quite the turnround for a firm that has been criticised — by the opposite camp — for its meddling stakeholder capitalism. Boss Larry Fink, a besuited eco-warrior, has long beat the drum for sustainability. This, he explained in his annual letter to chief executives, is “not because we are environmentalists, but because we are capitalists and fiduciaries to our clients”. Yet it has long been especially supportive of management plans. BlackRock backed two out of four climate resolutions for miner BHP, siding with management; and voted in favour of emissions targets at Australian utility AGL.

There is no dichotomy here for BlackRock — which, after all, supported less than half of environmental and social shareholder proposals last proxy season. BlackRock seems to say that corporate management knows best when it comes to setting targets and the path to transition.

Instead, its real beef is with other shareholders putting proposals on the slate. Think activists pursuing their own agendas and demanding fast-track action, for example, or pesky NGOs with sketchy commercial chops. In any case, these represent a tiny sliver of the whole: just one-hundredth of the 165,000 items BlackRock voted on last year.

Expect that number to jump this year: 2022 is shaping up to be the hottest proxy season yet. About 529 resolutions were on the slate by March, according to As You Sow, up more than 20 per cent on the year-ago period. A fifth of those pertain to climate change with a heavy focus on greenhouse gas emissions reaching net zero by 2050.

Whether or not BlackRock’s rationale is disingenuous is beside the point. For many investors, the one-time climate champion’s abdication represents a big step back. It in effect grants permission to other investors to relax their grip. More worrying still, it puts corporate boards on notice that they can breathe a little easier when irksome proposals appear on the slate.

The Lex team is interested in hearing more from readers. Please tell us what you think about BlackRock’s decision in the comments section below.