While activists and advocates have long called for greater transparency and action on issues ranging from racial justice to climate change, the confluence of recent events, including the ongoing pandemic, racial justice protests and a dramatic shift in the political and regulatory environment, could mark a time of progress not just in philosophy but in real action.
Increased transparency and accountability related to diversity and climate risk has been a priority for impact investors for some time. Moves like the recent BlackRock commitments to increase its support for climate action and diverse corporate leadership show that asset managers and corporations alike are becoming more aware that investors expect not only words but also meaningful action and accountability.
In the News
Lawsuits brought by investors and stakeholders worldwide seek to hold fund managers and corporations to account for failure to sufficiently assess and disclose the financial risk associated with climate change. More than 700 suits of this type have been filed over the past five years.
Sustainable and ESG focused investing’s popularity in the past several years was at odds with regulatory action during the Trump administration, but the expectation is that under President Biden and a 3-2 Democratic majority on the U.S. Securities and Exchange Commission will lead to a walk–back of the recent Department of Labor rule limiting the use of ESG considerations by retirement plans and a push for greater corporate transparency of climate-related financial risks.
A group of 30 asset managers, along with pension funds and insurance clients, are working towards carbon neutral portfolios by 2050. The members of this Net Zero Asset Managers initiative have committed to align their engagement and their votes for corporate boards with this carbon neutral goal and creating new products to support investment in climate solutions. The question remains how quickly these commitments can be translated into meaningful progress.
In 2015, a group of corporate leaders committed to a series of goals directed at fighting climate change by 2020. As time runs out, it’s good news and bad news. The good news is that most of the 138 pledges have been met or appeared to be on track in the fourth quarter. The bad news is it was at least in some part because the goals were relatively modest.
WALL STREET JOURNAL
JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and U.S. Bancorp will ensure they have policies in place to guarantee that diverse candidates are being interviewed for upper level positions. The banks have also committed to making their policies public. While the policies will vary, they primarily require interviewing at least one woman and one person of color for each senior or upper management position. While all of the banks in question said that they currently have some of these guidelines in place, the increased transparency make it easier for them to be held accountable for their commitments.
NEW YORK TIMES
In his annual letter, CEO Laurence D. Fink called for companies “to disclose a plan for how their business model will be compatible with a net-zero economy” by 2050. Fink also announced that BlackRock will use what it called a “heightened-scrutiny model” to analyze climate change-related risk in their actively managed funds, including flagging some high-risk holdings the firm could exit. BlackRock has been the focus of criticism for heavily favoring management positions over shareholders on issues like climate change, which they positioned as “giving companies the benefit of the doubt” prior to the sea change over the past year.
Research & Reports
Despite public statements supporting racial justice, the proxy voting behavior of some prominent asset managers has consistently supported the status quo against calls for greater racial equity and accountability, according to this joint report from Majority Action and Service Employees International Union. In 2020, BlackRock and Vanguard consistently voted against shareholder calls for action on issues of racial justice both inside and outside of corporations. In contrast, Legal & General, Amundi and PIMCO voted to support nearly all racial justice related resolutions.
One out of every three dollars in professionally managed U.S. assets employed ESG strategies at the start of 2020. $17.1 trillion in U.S. based assets employed ESG strategies, out of a total $51.4 trillion in professionally managed assets. Climate change ranked as the top ESG criteria for money managers while avoiding conflict risk in countries like Sudan and Iran was the primary concern for institutional investors.