The climate change and its impact are accelerating at an unprecedented pace, and so is the pressure on corporates from investors to incorporate ESG considerations in long-term planning. The evidence of the same could be gathered by inferring to multiple instances of corporates being forced by shareholders to consider climate change at the top of their decision-making plans.
Image Source : © Kalkine Group 2020
In the recent past, Exxon Mobil was targeted by activist investors while one of the United States largest pension funds – CalSTRS announced its plan to potentially divest from oil and gas stocks. Likewise, the global oil giant – Royal Dutch Shell witnessed many green executives leaving the Company amid discord over green energy push.
Joining this ever-growing list, Blackrock – one of the world’s largest money managers issued an update on its approach on engaging with corporations, in which, climate change takes a centre stage.
The money manager recently reviewed and updated its Investment Stewardship known as Blackrock Investment Stewardship (BIS), suggesting corporates on demonstrating plans to align their business with the global goal of reaching net carbon neutrality by 2050.
In January 2020, the money managers outlined their intention to engage more deeply and more often with companies in carbon-intensive sectors on climate-related business risk.
Image Source: © Kalkine Group 2020
Furthermore, in the year to June-end, Blackrock narrowed down to the universe of 440 carbon-intensive companies which roughly represented 60 per cent of the global Scope 1 and Scope 2 emissions and voted against 55 directors while putting 191 companies under the watchlist.
The measure by the money manager flagged the risk of votes against directors in the coming years unless corporates demonstrate considerable progress on the management and reporting of climate-related risk.
From 2021, Blackrock plans to expand its targeted universe from 440 to over 1,000 companies, which would roughly represent 90 per cent of the Scope 1 and Scope 2 emitters, raising bars for corporates on better engagement and better reporting of climate change-related risks on their business.
Moreover, the money manager suggested in the BIS that if a company does not provide adequate public disclosures for it to assess how they are dealing with material risks, especially with the climate-change risk on the investment, the money manager would conclude that such risks by corporates are not appropriately managed and mitigated.
Apart from the climate change-related risk, the updated BIS also pointed towards the increasing need for better ESG considerations and integration into the long-term planning over the mitigation of such risks on the investment.
While Blackrock’s warning could drum a bit louder over its considerable influence on proxy battels against corporates, the impact of many ESG issues has been clearly evident until now.
For example, the ASX-listed iron ore miner – Rio Tinto Limited (ASX:RIO) had witnessed a strong community backlash over the destruction of an indigenous site due to poor internal monitoring, leading to the firing J-S Jacques along with the reshuffling in the senior management.
Despite such stringent implications, the miner is even facing a potential penalty threat of $250 million.
To Know More, Do Read: Rio Tinto (ASX:RIO) Likely To Face $250 Million Payout For Juukan Gorge Destruction