BlackRock will be enhancing its expectations relating to board diversity and climate reporting in the coming year, as revealed in the world’s largest fund manager’s 2022 engagement priorities, published Tuesday.
These engagement priorities serve as a precursor to BlackRock’s 2022 proxy voting guidelines, due to be published in the new year, to make clear which issues the fund manager will be aggressively pursuing in the coming proxy season.
Starting in 2022, BlackRock will expect the boards of U.S.-listed companies to disclose targets and demonstrate progress toward reaching a minimum of 30% female representation. U.S.-listed companies should feature at least two directors on their board who identify as female and at least one from an ethnic or racially diverse background.
Large companies, specifically those in the S&P 500, will be looked to for “continued leadership” in this area, BlackRock said.
Although BlackRock did not confirm the specific voting action that might be taken against boards that fail to demonstrate sufficient diverse representation, the fund manager’s 2021 proxy voting guidelines stipulate that nominating committee chairs may be opposed where boards fail to exercise sufficient oversight of this issue.
In the U.K., the fund manager expects boards to feature at least 33% female representation and at least one racially or ethnically diverse director, in line with the recommendations of the Hampton-Alexander and Parker reviews, respectively.
When nominating new directors to the board, the fund manager encourages boards to provide sufficient information on individual candidates so shareholders can “address the suitability of each individual nominee and the overall board composition.”
Climate risk and reporting
Ahead of 2022, BlackRock wants companies to demonstrate that their transition strategies are resilient under likely decarbonization pathways and that they align with the global aspiration to limit global warming to 1.5°C.
Companies should disclose how their capital allocation across alternatives, transition technologies, and fossil fuel production is consistent with their strategy and their emissions reduction targets, the fund manager said.
Given continuing advances in sustainability reporting standards other than those of the Sustainability Accounting Standards Board (SASB), BlackRock asks that all companies use sustainability metrics that are industry-specific, to ensure comparability and consistency.
In response to a “greater interest among other stakeholders,” BlackRock will now expect companies that include ESG metrics in executive compensation structures to disclose how such metrics align with a company’s strategy. ESG metrics should be as rigorous as other financial and operational targets.
Starting in 2022, the world’s largest fund manager will expect companies looking to change their corporate form, such as shifting to a public benefit corporation, to put the measure to a shareholder vote if not already required to do so under applicable law.
Supporting documents from managers or shareholders proposing the changes should show how stakeholders would be impacted by this change, as well as accountability and voting mechanisms that would be available to shareholders should a company change its corporate form, the fund manager said.