Making progress on corporate climate risk disclosure is slow work. Partly it’s because the topic is complex, but it’s also because institutions are slow to change, even those that set themselves at the forefront. Last week brought two examples.
First, investment giant BlackRock released its sustainability report, in which it said it identified 244 companies that are making insufficient progress integrating climate risk in their business strategies and disclosures. The firm voted against directors or board proposals at just 22% of these companies, and the rest it put on “watch” for, well, that’s not clear. Presumably, BlackRock has been watching them all along, so getting added to a list isn’t exactly a change. And it’s hardly a reprimand; none of the lagging companies were named.
Larry Fink, CEO of BlackRock, has been a highly visible supporter of sustainability, vowing to put it “at the center of our investment approach,” and he has called for stronger action by companies on climate change, including better risk disclosure.
So it’s odd that BlackRock’s actions so far have fallen short of these aspirations. The tepid watchlist and the firm’s failure to vote on several highly watched proxy contests, like the re-election of former Exxon CEO Lee Raymond to the board of J.P. Morgan Chase, suggest Fink is wary of confrontation.
He’s like a dad driving a car with misbehaving kids who says, “Don’t make me stop this car!” The warning subdues them for a little while, but the kids know he really won’t do anything, and soon they’re back at it again.
In fact, BlackRock has long been on a collision course between its rhetoric and the reality of its business. As an index-fund manager, it has to stay invested and can’t simply sell when it disagrees with a company’s actions on climate change or anything else. It has to engage, and that’s hard, expensive work, particularly at BlackRock’s scale, where the firm is a shareholder in thousands of companies.
It’s no surprise Fink finds writing letters, making speeches and opining in CNBC interviews is a lot easier than the nitty-gritty of shareholder activism.
He is likely to keep walking the tightrope, trying to make good on BlackRock’s pledge to hold companies accountable while facing criticism that it’s moving too slowly. It’s not an easy place to be.
The other development, also long overdue, was the announcement that SASB and GRI would collaborate to provide more clarity on how their standards can be used for sustainability reporting. The step is a response to complaints from companies and investors about the proliferation of reporting standards.
No timetable was set for when or what this collaboration will produce. Still, some cooperation is better than none. The sustainability reporting sector would be greatly improved by a brisk round of consolidation and, well, standardization of standards. Disclosure requirements imposed by regulators, as some investors have urged, would be a solution, too. Neither seems likely in the near term.