BlackRock has increased its engagement by nearly half this year, and increased the number of votes against directors in invested companies, according to its 2020 BlackRock Investment Stewardship (BIS) report.
BlackRock's report details their activities over the past year, including noting that there were more than 3,000 engagements from July 1 2019 to June 30 2020, an increase of 48% over the previous year, with board quality, corporate strategy and environmental risks as the key element of conversations.
BlackRock grounds its stewardship activities in its role as fiduciary to clients, and says it uses the tools of investment stewardship to "promote sound corporate governance and business practices to help maximize long-term shareholder value for our clients."
"What we need to do is ensure the long term operational sustainability of the companies that we are invested in," said Iris Davila, Australian head of investment stewardship at BlackRock. "What we are seeking to achieve is to be very clear and express our expectations of what we believe is corporate governance best practices. What has crystalised is the clarity of our expectations and how that translates back to voting actions, as well as the obvious need for ourselves to improve our own transparency into our own activities."
Davila calls BlackRock's stewardship an evolution that changes as the concept of best practice evolves. She highlighted diversity and inclusion as an area where BlackRock's engagement and voting practices have changed as well as the issue of climate risk and disclosures.
This evolving mindset is expressed through BlackRock's proxy votes and announced future directions in proxy voting. BlackRock noted that they voted against management over 5,100 votes against directors vs. nearly 4,800 in the prior year. In 1,700 votes, the issue was lack of director independence, in 1,500 votes, it was on the ground of insufficient diversity. In 700 votes, it was based on overboarding, in 660 votes, the issue was compensation committees, particularly in the US and UK, and 55 votes against director-related item at 49 companies, for not meeting expectations on climate risk disclosure or management.
BlackRock is providing more information on its investment stewardship activities in part because it demands that from invested companies and also to provide greater clarity on the fund's expectations of invested companies.
"We are bringing in the concept of purpose and license to operate, and being very conscious of our own purpose, and encouraging companies to think about how they're challenging their own," she said. "You see that come up in the context of corporate strategy, capital allocation, you can spend a lot of time with companies talking about purpose, their own social license, how they're thinking about their own future, again trying to emphasise the long term operational sustainability for themselves."
Framing long term value generation on the basis of purpose is a way of leveraging common meeting ground for a variety of stakeholders and participants - Davila noted that it can apply equally to human capital management and aligning employee roles and culture issues, to community expectations as well.
"One of the really interesting things about this concept of purpose is that it provides a language for companies to articulate it to all the different stakeholders that they need to engage," she said." If you think about a company tying back to its purpose, that goes to how they're incorporating it into its corporate strategy.
"I also think it's an important tool when you're thinking about the different stakeholders in the market and a company's social license to operate - community, regulators, government,- if it's clear what your purpose is, it can lead to an alignment of expectations."
The COVID-19 pandemic has brought to sharper relief ongoing issues of engagement and stewardship for BlackRock - board diversity, and climate risk.
"COVID-19 has brought forward again, the importance of having a really good strong, diverse boards," Davila said. "It has really brought forward the need for companies to think about how they're impacting their communities, how they're treating their employees, so it really has heightened the activities that we've talked about in the last few years."
Climate risk has not taken a back seat this year.
"The environmental risk component of this has not gone away - it's been heightened," she said. "You would have thought the shaky macro-picture would have called into question the commitments and expectations - that hasn't been the expectation from our client base.? There is a desire for a more laser like focus on these issues. I think it has, from what we've seen in our own work, our engagements have only increased this year, the contact pints we've had, the conversations we've had have been a lot deeper in the sense of covering off."