BlackRock Chair & CEO Larry Fink dispensed with his separate annual letters to CEOs and clients this year in favor of one letter to investors being shared with all stakeholders in recognition of shared interests and concerns among companies, investors, employees, and others. While the letter focuses largely on how BlackRock approaches and effects its fiduciary duty to clients to achieve optimal risk-adjusted returns in the context of challenging dynamics (e.g., inflation, geopolitics, climate), two topics (excerpts below) that respond to criticisms of BlackRock specifically (as respects climate-related demands) and institutional investors generally (as respects their reliance on proxy advisors) are particularly noteworthy for corporates.
On climate-related demands (emphasis added):
Many of our clients also want access to data to ensure that material sustainability risk factors that could impact long-term asset returns are incorporated into their investment decisions. This is why we partner with other companies and provide insights into how a changing climate and the transition may affect portfolios over the long term. These clients track the transition to lower carbon emissions just as they track any other driver of investment risk... Our job is to think through and model different scenarios to understand implications for our clients’ portfolios.
That’s why BlackRock has been so vocal in recent years in advocating for disclosures and asking questions about how companies plan to navigate the energy transition. As minority shareholders, it’s not our place to be telling companies what to do. My letters to CEOs are written with a single goal: to ensure companies are going to generate durable, long-term investment returns for our clients…But as I have said consistently over many years now, it is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police.
On proxy advisors in relation to its Voting Choice initiative (emphasis added):
When I first started writing letters to the CEOs of the companies in which our clients are invested, my entire focus was on stewardship and ensuring engagement that centers on creating long-term value for our clients. We set out to build the best global stewardship team in the industry – to engage with companies on corporate governance not just during proxy season, but year-round because we didn’t think that the industry’s reliance on just a few proxy advisors was appropriate. We believed that our clients expected us to make independent and well-informed decisions about what was in their best financial interest. And we still do.
At the same time, we believe that adding more voices to corporate governance can further strengthen shareholder democracy. But democracy only works when people are informed and engaged. As more asset owners choose to direct their own votes, they need to make sure they are investing the time and resources to make informed decisions on critical governance issues. Proxy advisors can play an important role. But if asset owners rely too much on a few proxy advisors, then their voice may fall short of its potential. I certainly believe that the industry would benefit from more proxy advisors who can add diversity of views on shareholder issues.
Not surprisingly, the letter also makes clear that Larry Fink is a proponent of CEOs speaking out on issues they deem important (which is not a universally shared viewpoint): “Part of supporting our clients includes speaking out on issues important to their investments. I’ve long believed that it’s critical for CEOs to use their voice in the world – and there’s never been a more crucial moment for me to use mine. I will do so whenever and wherever I believe it can serve the interests of our clients and the firm.”
Stay tuned for more commentary on this signature annual letter.