BlackRock stresses financial strength over ESG in company calls

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BlackRock will stress “financial resilience” in its talks with companies this year, as the $10tn asset manager navigates a political backlash to environmental, social and governance investing.

With artificial intelligence and high interest rates rattling companies globally, BlackRock wants to know how they are managing these risks to ensure they deliver long-term financial returns, the asset manager said on Thursday as it detailed its engagement priorities for 2024.

BlackRock reviews these priorities annually as it talks with thousands of companies before their annual meetings on issues ranging from how much their executives are paid to how effective their board directors are.

“The macroeconomic and geopolitical backdrop companies are operating in has changed. This new economic regime is shaped by powerful structural forces that we believe may drive divergent performance across economies, sectors and companies,” BlackRock said in its annual report on its engagement priorities. “We are particularly interested in learning from investee companies about how they are adapting to strengthen their financial resilience.”

“It’s really what clients actually care about right now,” said Joud Abdel Majeid, BlackRock’s global stewardship head. “Companies are in a moment where these changes are impacting their business models and . . . the choices they are making are going to meaningfully change their profitability outlook.”

BlackRock’s list of top priorities for 2024 gave the same prominence to “climate and natural capital” as last year. However, it dropped references to “global warming” that had been included in previous years, including a reference to companies adapting to a world “in which global warming is limited to well below 2C”.

The firm has faced intense political pressure from the right and left over its stance on ESG issues, and last week added “ESG matters” to a list of two dozen risks that it faces in a quarterly regulatory filing. In December, the state of Tennessee sued BlackRock for allegedly violating consumer protection laws by misusing ESG factors in investing strategies. Also last month, Republicans in the House of Representatives subpoenaed BlackRock and rival State Street to get more documents about their ESG practices.

BlackRock’s language on climate change in corporate engagement has shifted as the political pressure has grown in recent years. In 2021, its engagement priorities said “we expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2C”. It made similar statements in 2022 and last year.

It has softened other aspects of its climate policy at companies, voting for far fewer environmental shareholder proposals in 2023, arguing that too many of them were frivolous.

It included a reference to global warming and 2C as part of its global principles for investment stewardship from January 2024 that it also published on Thursday. In this year’s engagement priorities, BlackRock also said: “We recognise that companies in different markets are adapting to the low carbon transition in varying contexts as a result of differences in the current policy landscape.”

Increasingly, the firm has become a political target for liberals and conservatives, said Greggory Warren, an analyst at Morningstar.

“BlackRock is the biggest punching bag because it is the largest asset manager in the world and . . . CEO Larry Fink has been so vocal about the use of ESG factors when making investment decisions,” Warren said.

However, he added, ESG investing represented a big and growing pot of money and was not going away. BlackRock manages two of the five-largest US ESG funds, according to Morningstar, and has more than $48bn of ESG assets under management.

“At the end of the day, this is all political theatre,” Warren said. “The ‘red’ states will continue to complain. Some money may move out of BlackRock’s offering, but there is likely to be as much coming in from less agitated clients.”