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On the heels of CEO/Chair Larry Fink's letters to CEOs and clients last week (reported on here), BlackRock published additional resources that elaborate on its new sustainability standard-based investment approach and suggest expectations and actions for policy makers, companies and investors to consider in support of that approach.

"Towards a Common Language for Sustainable Investing" focuses on:

• Clarification and simplification of the terminology used in the sustainable investment arena in a manner that promotes a common understanding of investment products and product integrity without compromising a multitude of different investment objectives  - all of which may be legitimate and should be supported
• Convergence and alignment of ESG/sustainability reporting frameworks to enhance corporate disclosures and facilitate more reliable comparability across portfolio companies without imposing a one-size-fits-all disclosure standard that fails to account for company-specific materiality
• Encouraging an ESG taxonomy for sustainable economic activities that can affect sustainability objectives such as climate change mitigation, advancement of the SDGs, etc., which, in turn, should support the investment offerings and corporate disclosure objectives set forth above

Among many noteworthy takeaways, the paper acknowledges the burdens on companies imposed by the ESG raters in the form of multiple surveys - many of which seek different sets of data depending on their focus. BlackRock notes that these burdens would be mitigated by the convergence and alignment of corporate reporting frameworks, which would narrow the scope of requested data. In this regard, the paper further supports BlackRock's push to coalesce around the TCFD and SASB frameworks, as announced in Larry Fink's annual CEO letter. But for the survey-related burdens and significant variability in scores across or even within companies (which presumably could mislead assuming reliance on a single source), BlackRock otherwise appears generally supportive of ESG ratings for their ability to assist investors in analyzing voluminous data across different ESG-related metrics and thus provide some degree of relative comparability.

More generally, the paper also reiterates and emphasizes BlackRock's focus on material sustainability-related risks, and the expected adverse consequences to companies (and their boards) that fail to demonstrate meaningful movement toward adoption of appropriate frameworks to identify, manage and disclose financially material, business-relevant risks.

"BlackRock Investment Stewardship’s approach to engagement on the TCFD and the SASB aligned reporting" fleshes out the bases for and benefits (to investors and companies) of financially material, business-relevant climate-related risk & opportunity disclosure; reiterates BlackRock's support for the TCFD and SASB disclosure frameworks; and details the pillars of the TCFD framework with reference to its climate-related engagement approach. In addition to educating about the TCFD framework and disclosure recommendations, this resource is a convenient climate engagement preparation tool for BlackRock portfolio companies.

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Note that - as recently reported based on a State Street survey of more than 300 institutional investors globally (nearly 80% pension funds) on how they are implementing ESG strategies into their portfolios, different institutional investors favor different frameworks or standards - differentiated in part by whether they have already implemented or are implementing a formal ESG policy. Based on that study, investors with a formal ESG policy in place identified the UN PRI (geared toward investors with a view toward - among other things - their seeking standardized ESG reporting from their portfolio companies using tools such as the GRI) and the GRI as the two most impactful, whereas investors currently implementing a formal ESG policy and those without a formal policy but investing in ESG cited the GRI and SASB frameworks. State Street itself predicts SASB will emerge as the leading global ESG framework. 

Note also that although a number of shareholder proposals seeking corporate sustainability reporting were filed last year and previously, those proposals typically did not (and perhaps could not within the confines of the Rule 14a-8 no-action process) mandate companies' use of particular reporting framework(s). ISS's Proxy Voting Guidelines look to a company's commitment to reporting based on the GRI guidelines "or a similar [reporting] standard" unless the company is already making disclosure when evaluating whether to recommend a vote for shareholder proposals that request corporate sustainability reporting. See our prior reports: "ESG: Disclosure Frameworks, Raters & More," "Sustainability Reporting Frameworks," and "Prepare Now for the 2020 Proxy Season."

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