Both True — BlackRock Foreshadows Investor Expectations

In January of 2020, BlackRock CEO Larry Fink put climate action at the center of his annual letter. Other investment firms quickly followed suit.

In December of 2020, BlackRock released their 2021 Stewardship Expectations. Don’t waste time wondering if this document, too, will influence the investment landscape for oil and gas companies. It will.

Earlier this week, Fink released letters to clients and portfolio companies emphasizing these priorities. It is interesting that in a year of pandemic, economic woes, and political change, Fink emphasized addressing climate change above all else.

Blackrock’s new guidelines lay out the five key expectations that translate to five changes you need to incorporate into your 2021 ESG strategy. The good news: We have been talking about all this for some time.

Both of these things are true:

  • The world needs oil and gas industry leadership to build the energy future more than ever before.
  • Investors are pressing for demonstrable change from oil and gas companies in 2021.

The situation:

Oil and gas companies are not unique in facing investor pressure. In the first two weeks of January alone, financial institutions Bank of America, BlackRock, T. Rowe Price, Vanguard Funds, and Wells Fargo have all received ESG-focused shareholder resolutions. Financial institutions under investor pressure are the latest development in the second of three big disruptors (Activism Gone Mainstream) that I outline in The Gamechangers Playbook.

BlackRock is the first large-scale financial institution to make the next move. The 2021 Stewardship Expectations gives us tangible, actionable insight into what pressures are coming for your leadership team. Their 2021 guidance covers five key areas:

  • Hold board leadership accountable. BlackRock indicated that they will publish their engagement priorities and supporting key performance indicators (KPI) for 2021 early this year. BlackRock’s goal? To hold board directors responsible “to shape and monitor management’s approach to material sustainability factors.” BlackRock will hold noncompliant directors accountable by voting against their re-election. And the firm will demand even more board accountability through new diversity expectations I outline below.
  • Expect plans for a low-carbon transition. BlackRock engaged over 400 of their portfolio companies last year on climate. That number will increase this year to over 1,000 carbon-emitting companies — and some of our clients will be among them. BlackRock expects their portfolio companies to each articulate a plan for how their business model is aligned with the goal of achieving net-zero global greenhouse gas (GHG) emissions by 2050.
  • Address key stakeholder interests. Portfolio companies must report on how they have identified key stakeholders and considered their relevant interests in business decision-making processes.
  • Focus on diversity, equity, and inclusion. In the U.S., BlackRock will now require companies to disclose the diversity of their workforce through EEO-1 data (e.g., race, gender, and ethnicity demographics), in addition to disclosing actions being taken to advance relevant DEI and workforce engagement. Similarly, BlackRock is asking U.S. companies to disclose data on the diversity of their board members and has stated it has “an eye toward” voting against boards that do not exhibit diversity in 2022.
  • Align political activities. In a move reflective of investor pressure seen by the oil and gas majors, BlackRock wants to see political activities consistent with policy issues. This explicit call for politics to match policy includes monitoring companies’ political giving as well as the positions taken by trade associations.

Seize the day:

BlackRock’s 2021 expectations provide clear, actionable priorities for your ESG strategy. As we saw in 2021, as BlackRock goes, so go mainstream investor expectations.  Their five expectations align to your five areas for action.

Board leadership — you are on deck. You are now directly accountable for the company’s ESG, DEI, and political giving strategies. Every bullet below is your 2021 priority, starting now.

  • Articulate goals and supporting plans for a net-zero business. I have been talking to you for the last 18 months about preparing for this move. The time has come to make it. There are some well-defined, pragmatic steps your company can take in ESG planning, such as conducting an analysis to support the Task Force on Climate-related Financial Disclosures (TCFD) framework. Adamantine can help you with a consultation, strategy session, or ESG plan development. You’ll want these goals and plans articulated by year-end.
  • Address key stakeholder interests. Mapping your stakeholders and assessing the materiality (meaning relevance) of your ESG priorities will be the starting point for your revised ESG strategy. If you haven’t started this process, make it a Q1 activity.
  • Make meaningful progress on diversity, equity, and inclusion. Companies must get their strategy and data ducks in a row in 2021. Start by preparing your sustainability accounting standard board (SASB) disclosures. Not sure where to start? Schedule a strategy consultation.
  • Align political activities. We think you have got 2021 to develop an assessment and go-forward strategy for your political giving and trade association membership. You will be seeking a coherent, consistent policy and political narrative. This is a Q2 and Q3 effort.

Your company has now received a clear call to action on ESG strategic planning and action. I’d like to hear about how your company is meeting this call in 2021 — hit reply and tell me about it.

Last week I released the “Ask Me Anything” episode of the Energy Thinks podcast — I sat in the hot seat and answered your questions! Let me know what you think and keep those questions coming. If you haven’t yet, you can subscribe to this weekly newsletter here.

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