ICCR Letter to BlackRock on Integrating ESG Risk Factors

In November of 2024, ICCR wrote Larry Fink, the CEO of BlackRock, expressing a number of concerns regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks.

Dear Mr. Fink,

We are writing on behalf of the Interfaith Center on Corporate Responsibility (ICCR), a coalition of over 300 global institutional investors that collectively represent more than $4 trillion in managed assets, to reflect the concerns of a number of investors and clients regarding BlackRock’s 2024 proxy voting record on shareholder proposals related to environmental and social and governance (ESG) risks. Our members, many of whom are shareholders and clients of BlackRock, are long-term investors who have raised these concerns with you before through conversations and correspondence.

While we are mindful of the recent pressures fund managers face from parties attempting to discredit ESG, the fiduciary case for integrating material ESG risk factors into investment decisions and proxy voting is clear and irrefutable. BlackRock’s own research1 indicates that the long-term implications of inaction on climate change could reduce global economic output by nearly 25 percent over the next two decades, making addressing climate change a material issue for fiduciaries. Yet despite this, BlackRock's recently released 2024 Global Voting Spotlight reports that the firm “supported (only) four out of the 161 shareholder proposals on climate and natural capital that we voted on”. This was 2.5% of votes cast on climate resolutions. The firm’s proxy voting record on shareholder resolutions related to impacts on people was no better as BlackRock “supported 16 out of the 332 shareholder proposals we voted on (~5%), 14 at U.S. companies and two in EMEA”. We believe this an abdication of fiduciary duty and is also bad business.

BlackRock’s survey of institutional investors clearly indicates that your clients care about proxy voting on sustainability (which emerged as the number one criterion for selecting managers by 20% of 200 institutional investors surveyed, second only to “access to proprietary deals’ - selected by 23% of respondents) so you will not be surprised that we are raising these concerns again.

Furthermore, BlackRock’s 2024 proxy voting record and rationale appear at times to be unclear. The most recent NPX filings indicate BlackRock voting against disclosure asks that it supported only last year, and offering vague voting rationale on other asks arguing that: “The request is either not clearly defined, too prescriptive, not in the purview of shareholders, or unduly constraining on the company”. The 2024 Global Voting Spotlight also indicates that in over 60% of the cases, BlackRock did not support a shareholder resolution because the "company has a process in place to address business risk” even in cases when the company did not make appropriate disclosures about the processes in place to address the issue(s) to the shareholders, the proponents or the SEC. At DexCom, BlackRock opposed a majority supported 2024 shareholder proposal calling for political spending disclosure in an election year. This is a clear example of BlackRock’s understanding of material risks raised by shareholder proposals diverging from the majority of shareholders at the company. Given how important proxy voting on sustainability is to your clients we hope you will address some of these apparent inconsistencies.

In February 2024, we welcomed BlackRock’s announcement that it was developing a new sustainability-focused stewardship offering for clients who want its active ownership work to drive decarbonization and sustainability outcomes3. The announcement explained that this service was in response to client demand as a survey of 200 institutional investors globally, representing nearly $9tn in assets under management indicated that 98% of them have set some kind of transition investment objective for their portfolios. However if managing climate risk is a key element in maximizing long-term value for clients then we would expect BlackRock to pursue that consistently as part of your fiduciary duty. BlackRock’s own Resilience Through Change; 2024 Insurance Global Report indicates that 99% of the 410 senior executives representing US 27T of AUM surveyed reported having set at least one type of transition objective within their investment portfolio, a clear indication of the materiality of climate risks among the majority of that sector.

As we look at the hundreds of climate related and social resolutions, we believe many more than 4 resolutions make a strong business case related to shareholder value and are not overly prescriptive. It seems like BlackRock has instituted a new high bar for shareholder resolutions that is almost impossible to meet. We are concerned about what motivated this change and fear that pressure from conservative investors played a role in the shift. In addition, we note that many other investment firms guided by the same fiduciary standards as BlackRock have a much higher number of percentage of votes for resolutions.

Furthermore, while we appreciate your case-by-case approach to assessing shareholder proposals, ICCR members and many of your clients are investors with diversified portfolios and ignoring systemic risks like climate and racial justice may benefit one of their companies but passes that cost on to the other companies in their portfolio. PRI and CAF’s recent guidance on stewardship also states that: “Using influence to promote short-term performance or the performance of individual companies, industries, or markets, without regard to overall value, does not constitute stewardship”.

There is growing evidence that asset owners are becoming increasingly concerned about asset manager’s proxy voting on ESG shareholder proposals5 and many are taking action6. And it seems these concerns are well placed. The UK Asset Owner Stewardship Review highlights a growing misalignment between asset owners and asset managers when it comes to exercising stewardship and proxy voting at major Oil and Gas companies. This misalignment is more pronounced (i) in recent years, (ii) on shareholder resolutions (vs management proposals) and (iii) at American companies (vs. European ones). There is also worrying evidence that asset managers’ corporate engagements are not moving the needle with companies.

As clients and shareholders our members want to see BlackRock as both a market and an ESG leader and would welcome efforts on behalf of the firm’s leadership to reiterate their commitment to ESG and to commit to a critical review of their proxy voting guidelines and record. We welcome the opportunity to continue the dialogue with you on the issues raised.

Sincerely,

Josh Zinner, CEO Interfaith Center on Corporate Responsibility

Katie McCloskey, Vice President of Social Responsibility, Mercy Investment Services

David A. Klassen, Chief Investment Officer, The Pension Boards - United Church of Christ, Inc.

Matthew Illian, Director of Responsible Investing, United Church Funds

Ethan Birchard, Executive Director, Friends Fiduciary Corporation