Blackrock’s Climate Announcement Pales In Comparison To Proxy Advisor Influence And Advocacy – Digitalmunition




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Published on January 24th, 2020 📆 | 6696 Views ⚑

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Blackrock’s Climate Announcement Pales In Comparison To Proxy Advisor Influence And Advocacy

Interfaith Center on Corporate Responsibility (ICCR), an advocacy group that pioneered the use of shareholder advocacy to press companies on issues related to ESG and other political matters. One way it seeks to do so is by filing shareholder resolutions; in 2017 it filed over 300 proxy proposals.    

This conflation of investor interests and activist agendas is one reason the Securities and Exchange Commission recently introduced new guidance along with a proposed rule to make sure that asset managers are not simply relying on these advisors without ensuring that their recommendations are in the best interest of their investors. It is no surprise that the ICCR is decidedly against the proposed SEC regulation on proxy advisory firms.  

A recent analysis conducted by the Spectrem Group, a professional investor research and strategic analysis group, and George Mason University law professor J.W. VerrettGeorge Mason University surveyed more than 5,000 investors with $10,000 or more in the U.S. stock market. The vast majority of investors stated that their return on investment was the most important factor in their investment and other related financial decisions and supported the SEC’s proposed rules. It made clear that there is a disconnect between the values and goals of most retail investors and the political agendas of proxy advisory firms. 

The Council of Institutional Investors (among others) pushed back against the findings , dismissing the idea that the results of the survey were relevant to proxy advisory firms. Ken Bertsch, its executive director, remarked that few investors would even know what they are and called the survey a “propaganda exercise”.

Verret responded that the mere fact that respondents indicated that their preference is first and foremost for the best investment returns means that the politicization of investment decisions should come only after returns have been prioritized. 

Another question the survey asked investors – and one that received broad support – was whether they favored a proposed rule that would increase the disclosure requirements for any potential conflicts of interest that proxy advisory firms have when advising investment managers. 

Even though ISS avers to be a neutral advisor, it is increasingly apparent it—along with a growing number of investment advisers—is motivated by a socially and politically motivated perspective.

Under current SEC regulations, investors are free to use ESG or other personal values to guide their investments, and an increasing number of them are doing so. BlackRock has profited from catering to this cohort by offering a variety of funds that exclude various companies that it deems insufficiently diligent about reducing carbon emissions or its hiring practices.

But advancing such an agenda for the portfolios of investors who may not share such a perspective–-and insisting that it is in their best interests—is inappropriate. The SEC is correct in examining such activities and proposing rules that give retail investors what they expressly desire—the best possible return on their savings. 

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BlackRock, the world’s largest asset manager, made headlines when CEO Larry Fink announced in his annual letter to investors that his firm would make sustainability and climate change two pillars of its corporate strategy and mission. The announcement signaled a greater willingness to vote against companies on non-traditional corporate governance matters, such as environmental and social issues.

Blackrock possesses a modicum of leverage over corporate America because of its ability to vote on shareholder resolutions on shares of companies it owns on behalf of its clients, and it owns a lot of stock—over $7 trillion, according to recent estimates. Its size means that any change in policy BlackRock makes for its voting process, especially on increasingly important topics like climate change, will have an outsized impact on the publicly traded companies in BlackRock’s portfolios.

However, large asset managers like Blackrock are not the only parties that have significant sway over corporate America. Investment managers that hold stocks in a large number of companies typically rely on the advice of proxy advisory firms when deciding how to vote on shareholder resolutions. These recommendations can easily sway a vote one way or another—a negative recommendation from the largest of the two dominant proxy advisors, Institutional Shareholder Services (ISS), has been shown to result in as much as a quarter of all votes to align with their recommendations.

The influence of proxy advisory firms on shareholder resolutions is notable because—like BlackRock—they appear to share an agenda that calls for putting pressure on companies to take steps to address climate change and advance various social agendas.

For instance, both ISS and its counterpart, Glass-Lewis, are members of the Interfaith Center on Corporate Responsibility (ICCR), an advocacy group that pioneered the use of shareholder advocacy to press companies on issues related to ESG and other political matters. One way it seeks to do so is by filing shareholder resolutions; in 2017 it filed over 300 proxy proposals.

This conflation of investor interests and activist agendas is one reason the Securities and Exchange Commission recently introduced new guidance along with a proposed rule to make sure that asset managers are not simply relying on these advisors without ensuring that their recommendations are in the best interest of their investors. It is no surprise that the ICCR is decidedly against the proposed SEC regulation on proxy advisory firms.

A recent analysis conducted by the Spectrem Group, a professional investor research and strategic analysis group, and George Mason University law professor J.W. VerrettGeorge Mason University surveyed more than 5,000 investors with $10,000 or more in the U.S. stock market. The vast majority of investors stated that their return on investment was the most important factor in their investment and other related financial decisions and supported the SEC’s proposed rules. It made clear that there is a disconnect between the values and goals of most retail investors and the political agendas of proxy advisory firms.

The Council of Institutional Investors (among others) pushed back against the findings , dismissing the idea that the results of the survey were relevant to proxy advisory firms. Ken Bertsch, its executive director, remarked that few investors would even know what they are and called the survey a “propaganda exercise”.

Verret responded that the mere fact that respondents indicated that their preference is first and foremost for the best investment returns means that the politicization of investment decisions should come only after returns have been prioritized.

Another question the survey asked investors – and one that received broad support – was whether they favored a proposed rule that would increase the disclosure requirements for any potential conflicts of interest that proxy advisory firms have when advising investment managers.

Even though ISS avers to be a neutral advisor, it is increasingly apparent it—along with a growing number of investment advisers—is motivated by a socially and politically motivated perspective.

Under current SEC regulations, investors are free to use ESG or other personal values to guide their investments, and an increasing number of them are doing so. BlackRock has profited from catering to this cohort by offering a variety of funds that exclude various companies that it deems insufficiently diligent about reducing carbon emissions or its hiring practices.

But advancing such an agenda for the portfolios of investors who may not share such a perspective–-and insisting that it is in their best interests—is inappropriate. The SEC is correct in examining such activities and proposing rules that give retail investors what they expressly desire—the best possible return on their savings.

Forbes

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