However, BlackRock has the potential to change the companies themselves. Investors in these funds typically provide the investment managers with the opportunity to act as proxies when voting on the management of the company. These include things like confirming members of the company's board of directors or changing the way the company does business. Because large investors such as BlackRock own a large number of shares, changes in voting patterns could make a significant difference.
What does he plan to do?
With a better understanding of what a company can do, we can turn to what it plans to do. In open letters, the company's management outlines its rationale for focusing on sustainability.
“BlackRock does not see itself as a passive observer of the low-carbon transition,” says CEO Larry Fink. “We believe we have a significant responsibility—as a provider of index funds, as a fiduciary, and as a member of society—to play a constructive role in the transition process.” And just as important, Fink says, clients constantly ask him to take action on climate and sustainability issues.
Fink continues to clarify how sustainability aligns with a company's fiduciary responsibilities. He argues that “climate change has become a determining factor in the long-term prospects of companies.” As a result, investors are beginning to “re-evaluate basic assumptions about modern finance,” which will mean that “a significant reallocation of capital will occur in the near future—and sooner than many expect.” Fink argues that because of this upcoming realignment, firms that focus on sustainability provide the least risk and the best return on investment. This provides grounds for changing investment policy in order to protect the interests of investors.
BlackRock's CEO is calling on companies to use newly developed standards to report on their climate and sustainability risks and how they plan to operate within the limits set by the Paris Climate Agreement. He goes on to point out that if companies do not do this, BlackRock will consider that they are not managing risk properly. He then throws out the big threat: “We will be increasingly willing to vote against management and boards of directors when companies do not make sufficient progress in their sustainability-related disclosures and the underlying business practices and plans.”
