BlackRock, the biggest world investor managing more than 7.8 trillion dollars, has just published its engagement and voting guidelines for 2021. It remains, however, unclear how the guidelines will truly impact the investor’s practices regarding the world’s biggest polluters such as Exxon Mobil, Shell or Peabody Energy. More importantly, what we know for sure is that without the threat of divestment, engagement can hardly be effective.

In its 2021 Stewardship Expectations, BlackRock finally recognizes shareholder resolution’s effectiveness in changing business practices and commits to back more shareholder votes on climate change. Up to now, BlackRock’s key argument to keep investing in some of the worst climate offenders was about staying invested into a company in order to push it to change. But research shows that in 2020, BlackRock has only supported 11% of climate resolutions, making it one of the worst investors when it comes to climate votes. Today’s news could be a huge shift in BlackRock’s practices, if engagement translates into action.

1. Effective engagement comes with real consequences

However, BlackRock has failed to adopt a robust engagement strategy. In 2021, BlackRock will ask companies to publish “plans to align their business with the global goal of net zero GHG emissions by 2050”. This expectation seems bold, but remains too general and focused on the long-term to allow immediate impacts, especially considering that Blackrock does not explain how this will translate into an effective engagement process leading to real-world change.

The following months will be decisive to see how this translates into actual voting. In its announcement today, the asset manager stresses that it will “support shareholder proposals that are reasonable and not unduly constraining to management”, which is extremely vague.

  • As we detail in our demands on engagement, a robust engagement process with companies requires public, specific and time-bound demands to deploy long-term 1.5ºC alignment strategies and immediate absolute emission reduction measures to halve GHG emissions by 2030.
  • Regarding coal, this means for example requiring companies to adopt, by 2021, asset-based coal phase-out strategies to fully exit the sector by 2030 in EU/OECD countries and 2040 worldwide. Such a demand is already made by various financial actors such as French investors Amundi, Lyxor and AXA.
  • Not only has BlackRock failed to require the adoption of specific coal phase-out measures but it also seems to consider a 2050 coal phase-out date acceptable. Indeed, referring to KEPCO, BlackRock says that they “welcome” KEPCO’s 2050 announcement. The problem is that KEPCO has not given up on all its new coal plants and that a 2050 coal phase out is far too late to achieve a 1.5°C target.
2. Engagement is only one of many decarbonization tools

While Blackrock’s decision to engage 1000 companies against 440 previously looks like good news, it remains unclear how it will find the resources to effectively engage with each of them. Engagement consumes time and resources and therefore the choice of companies to engage with is crucial, especially given the small window of time available to stay below the 1.5° limit.

For this reason, Reclaim Finance stresses the importance to carefully select the companies that are fit for engagement. Other companies should be addressed through other tools.

  • Beyond voting, investors are also responsible through their bonds and their decision to grant or deny debt to polluting companies and projects. Thus committing to align bond purchases with their climate engagement is crucial.
  • Divestment should also be considered as an obvious solution for companies that keep expanding the fossil fuel frontier and are not interested in transitioning.
3. BlackRock remains the largest investor in fossil fuels

In this regard, BlackRock’s current coal exclusion policy is extremely weak. Not only does the policy apply to less than a third of its assets under management – as passively managed funds are left out – but it also covers just 17% of the coal industry. Consequently, BlackRock can still invest in 240 companies planning new coal plants, mines and infrastructures.

Sad news, these coal developers are only a part of the many companies still backed by BlackRock despite their expansion plans in the fossil fuel sector. As the Five Years Lost report shows, BlackRock holds more than USD 110 billion in share and bond holdings of companies developing 12 large-scale and contested fossil fuel expansion projects.

The UNEP-led 2020 Production Gap report recently highlighted that to follow a 1.5°C-consistent pathway, the world will need to decrease fossil fuel production by roughly 6% per year between 2020 and 2030. It is well past time to build robust policies in line with climate science that help protect investor’s clients from stranded assets, and most importantly limit the negative impacts of their investments.

Further reading

  • More information on the Coal Policy Tool here.
  • ShareAction report “Voting Matters 2020” on asset managers’ proxy votes is available here.
  • More information on BlackRock’s model and influence here and on his coal policy here.