As reported in yesterday's Society Alert, BlackRock's new ViewPoint sets forth its views on how and why ESG factors play into its investment analysis, and describes the "current state" ESG disclosure standards initiatives and key disclosure challenges. Notably, BlackRock believes that "ESG issues of relevance to business performance" (as opposed to, e.g., sustainability reports addressing values-oriented stakeholders or aimed at educating employees about their company's citizenship) "should be integrated into fundamental company communications, publication and disclosures" - rather than in a stand-alone sustainability report as is an evolving corporate practice.
Based on the challenges it perceives to be associated with gathering and evaluating ESG information, the paper then sets forth BlackRock's recommendations for policy makers to promote the standardization of ESG metrics and disclosure requirements - inclusive of "safe harbor" protection against litigation for companies that initiate ESG disclosure in recognition of quickly evolving materiality standards:
SUMMARY OF POLICY RECOMMENDATIONS
Policy makers should focus on establishing a framework that enables stakeholders and market participants to develop detailed ESG standards and best-practice guidelines.
1. Encourage standardized ESG disclosure within a consistent global reporting framework, similar to international accounting standards, by:
a. Recognizing the importance of identifying and managing ESG risks and opportunities as a component of investment analysis.
b. Understanding the distinction between social, mission or "values" driven goals and investment ("value") goals.
c. Promoting clear and consistent definitions of ESG and developing a common lexicon.
d. Providing guidance that recognizes the need to tailor reporting to industries.
2. Establish safe harbor provisions that ensure companies who initiate ESG factor reporting do not face retrospective litigation.
3. Ensure regulation is designed and implemented to achieve policy objectives, rather than result in unnecessary disclosure.
4. Review, understand, and remove barriers to ESG factor integration and reporting by investors and companies.
5. Clarify how ESG considerations are part of investors' and companies' fiduciary duties.
6. Require investors to report whether they integrate ESG factors in their investment analysis and, if so, their approach to integrating them as well as stewardship activities.
Access numerous additional resources on our Sustainability and Institutional Investors topical pages.