Hi there!
Welcome to the new subscribers of LiAG who joined over the last week. You know who you are :)
Temperatures reached historic levels across the Indian sub-continent this week. Here is a map you must have seen on social media.
At the same time, India’s Eastern coastline braced itself for a “severe cyclonic storm”.
Still think an as-usual scenario would do? BlackRock seems to think so. Let’s get into this week’s edition.
Sustainable Investing is to BlackRock, what shitposting is to Elon Musk
Allow me to explain this profundity that you just read.
Larry Fink in his 2022 Annual Letter to Shareholders spoke about ‘the power of stakeholder capitalism’ in the context of climate action.
The letter emphasised how BlackRock’s Investment Stewardship team remains core to institution’s ability to fulfil its fiduciary responsibility to its clients through proxy voting in shareholder resolutions, especially the ones on climate action.
That same Investment Stewardship team announced earlier this week that it will not support most shareholder resolutions on climate change this year, because they have become too extreme or too prescriptive.
Because this is a *balanced newsletter* discussing important climate developments with context, let’s get the obvious out of the way.
Let’s give BlackRock the benefit of the doubt.
It is a financial institution, after all, with a primary responsibility to protect its clients’ financial interests.
The Investment Stewardship team explained their rationale further by outlining what sorts of proposals they were wary of. It includes those that demands one or more of the following:
— stop financing of fossil fuel companies,
— force them to decommission assets, or
— set absolute targets for companies on reducing emissions in their supply chains and their customers
It also slid in the ‘Russia-Ukraine war’ and the ever-growing concerns around energy security as one of the reasons for the shift.
All of this seems perfectly reasonable from the point of view of a money manager.
There are two things I disagree with here, as a matter of principle.
1/ Climate Risk isn’t Apparently Material Enough.
What is the point of claiming ‘climate risk is investment risk’, and then voting against a shareholder proposal that required detailed disclosures on how a company in Australia would manage down its coal operations.
The commentary recently published included the following:
[First half] We are not likely to support those that, in our assessment, implicitly are intended to micromanage companies. This includes those that are unduly prescriptive and constraining on the decision-making of the board or management, [Second half] call for changes to a company’s strategy or business model, or address matters that are not material to how a company delivers long-term shareholder value.
The two halves of the above quote don’t reconcile.
Sure, micromanaging companies and telling the board of publicly listed companies what to do is ridiculous.
But at the same time, without a shift in strategy, how is a climate-negative company going to stop doing more harm. I am not suggesting that shareholders resolution is the right platform to do that, but not qualifying the need for changes in strategy or tweaks to the business model, especially for large emitters, is outright half-a*sing.
Don’t even get me started about what is and isn’t considered material.
(Short answer — it depends on who you ask)
Material risks are those risks that are recognised by management as having the potential to materially impact business performance.
How much murkier can the definition get?
2/ So much for Climate Stewardship
Publishing a commentary piece on its website saying with the headline ‘2022 climate-related shareholder proposals more prescriptive than 2021’ does a whole lot of harm to , the very thinly-veiled reassurance to its clients notwithstanding.
What’s evident is BlackRock’s interest is only in those issues that have a direct impact on investment outcomes.
And that’s pretty much the problem.
Investment outcomes in a fossil-fuel economy will always result in doubling-down on fossil fuels. It focuses solely on capturing existing opportunities within the energy transition, and not on creating new ones.
Larry Fink’s Annual Shareholder Letters be like …