Leaders at BlackRock, SSGA set tone for ESG-focused 2022

Both executives drew attention to the Task Force on Climate-Related Financial Disclosures (TCFD). In his letter to CEOs on Jan. 17, Fink said disclosures consistent with the TCFD are “essential tools for understanding a company’s ability to adapt for the future.” He said Blackrock is “asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders.”

In his letter to boards published Jan. 12, Taraporevala said the SSGA will vote against directors across applicable indices should companies not meet the TCFD disclosure expectations. Secondly, he said, the SSGA “will launch a targeted engagement campaign with the most significant emitters in our portfolio to encourage disclosure aligned with our expectations for climate transition plans.”

In a controversial move, Fink and Taraporevala expressed their refusal to outright divest from fossil fuel companies. “Divesting from entire sectors—or simply passing carbon-intensive assets from public markets to private markets—will not get the world to net zero,” Fink wrote. “And BlackRock does not pursue divestment from oil and gas companies as a policy.”

Taraporevala explained it a bit more eloquently, describing each type of emission as a shade of color, with dark brown symbolizing coal, light brown symbolizing natural gas, and dark green symbolizing wind power. “A worldview that only sees ‘brown’ versus ‘green’ may generate profound unintended consequences,” he wrote.

The result of public companies selling off their highest-emitting assets to private equity “reduces disclosure, shields polluters, and allows the publicly traded company to appear more ‘green,’ without any overall reduction in the level of emissions on the planet,” Taraporevala wrote. “Bottom line: In the near term, the world may well need additional investments in some ‘light brown’ fossil fuels to propel the transition to net zero, rather than relying on an improbable immediate shift to renewables to solve the massive climate challenge.”

Fink and Taraporevala also challenged companies to think more critically about responding to today’s social issues, including board diversity. Issues like racial equity, childcare, and mental health, Fink wrote, “are now center stage for CEOs, who must be thoughtful about how they use their voice and connect on social issues important to their employees.”

Fink said BlackRock wants to understand how these social issues are affecting industries and companies: “What are you doing to deepen the bond with your employees? How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation, and productivity? How are you ensuring your board has the right oversight of these critical issues?”

Regarding board diversity, Taraporevala said the SSGA will be amending its gender diversity policy by coming down harder on boards. “Beginning in the 2022 proxy season, we will expect all [emphasis added] our holdings across the globe to have at least one woman on their boards,” he wrote. “To date, this policy has only applied to major indices in select markets around the world.”

By the 2023 proxy season, the SSGA expects boards to be comprised of at least 30 percent women directors for companies in major indices in the United States, Canada, the United Kingdom, Europe, and Australia. Should a company fail to meet these expectations, the SSGA will vote against the board’s nominating committee chair or board leader.

According to the latest research published by corporate leadership data provider Equilar, 26.1 percent of Russell 3000 directorships were held by women as of the third quarter of 2021. Almost half (47.7 percent) of new board seats were filled by women during the quarter. Key to this continued rise will be leaders with strong commitment to gender diversity initiatives, said Susan Angele, senior advisor of board governance at KPMG’s Board Leadership Center, in a press release.

Companies can be certain climate action and matters of diversity, equity, and inclusion will continue to take center stage in 2022. Competitively, firms that do not focus on those issues will face a losing battle.