Acting on behalf of our clients for the long-term.

Board composition, effectiveness, and accountability remain top priorities. In our experience, most governance issues, including how material sustainability issues are managed, require effective board leadership and oversight. We engage to better understand how boards assess their effectiveness and performance, as well as their position on director responsibilities and commitments, turnover and succession planning, crisis management, and diversity.

Key performance indicators

• Board effectiveness: We seek to understand how, and how effectively, a board oversees and advises management. A core component of BIS’ evaluation is direct engagement with a board member. For those companies with which we seek to engage, we expect to have access to a non-executive, and preferably independent, director(s) who has been identified as being accessible to shareholders where appropriate.
• Board diversity: We expect companies to disclose their approach to ensuring appropriate board diversity and, in those markets where we consider demographic diversity a priority, a demographic profile of the incumbent board.

We have engaged with companies on environmental risks and opportunities for several years. Each year we build on our expectations of companies as we seek to understand how they are mitigating climate-related risks and implementing plans to transition to a low-carbon economy. In addition, companies should consider their impact and dependence on natural capital. The management of these factors can be a defining feature in companies’ ability to generate long-term sustainable value for shareholders.

Key performance indicators

• Climate: We expect companies to articulate how they are aligned to a scenario in which global warming is limited to well below 2° C, consistent with a global aspiration to reach net zero greenhouse gas (GHG) emissions by 2050. Companies should provide disclosure aligned with the four pillars of the TCFD framework, including scope 1 and scope 2 emissions, along with accompanying GHG emissions reduction targets. Carbon-intensive companies should also disclose scope 3 emissions.
• Natural Capital: We encourage companies to disclose how their business practices are consistent with the sustainable use and management of natural capital, including natural resources such as air, water, land, minerals and forests. This disclosure should address companies’ impact in the communities in which they operate. Companies with material dependencies or impacts on natural habitats should publish “no-deforestation” policies and strategies on biodiversity.

For several years we have asked companies to articulate their strategic frameworks for long-term value creation and to affirm that their boards have reviewed those plans. Corporate strategy disclosures should clearly explain a company’s purpose, i.e. what it does every day to create value for its stakeholders. We believe that companies with a clearly articulated purpose that is reflected in their long-term strategy are more likely to have engaged employees, loyal customers, and support from other key stakeholders.

Key performance indicators

• In explaining their long-term strategy and financial resilience, companies should set out how they have integrated business relevant sustainability risks and opportunities. Companies should demonstrate long-term value creation, evidenced by metrics relevant to their business model. We encourage companies to report in line with the sector-specific metrics issued by the Sustainability Accounting Standards Board (SASB) to support their explanations of how they have considered key stakeholders’ interests in their business decision-making.

We expect boards to establish incentive structures and determine pay outcomes in the context of a company’s long-term strategy and its implementation. We believe that compensation policies should incentivize executives to deliver on strategic and operational objectives that contribute to sustainable long-term value creation.

Key performance indicators

• Incentives should be aligned with performance and value creation and outcomes correlated with business-relevant long-term performance metrics, such as 3-5-year total shareholder returns or returns on invested capital.

We believe that BlackRock’s clients, as shareholders, will benefit if companies create enduring sustainable value for all stakeholders. In our experience, companies that build strong relationships with their stakeholders are more likely to meet their own strategic objectives, while poor relationships may create adverse impacts that expose a company to legal, regulatory, operational and reputational risks and jeopardize their social license to operate. In addition to addressing workforce needs and expectations, we expect companies to mitigate adverse impacts to people that could arise from their business practices, exposing them to material risks.

Key performance indicators

• We expect that companies demonstrate a robust approach to human capital management and provide shareholders with the necessary information to understand how it aligns with their stated strategy and business model.
• Companies should disclose actions they are taking to support a diverse and engaged workforce and, in those markets where we consider demographic diversity a priority, a demographic profile of its workforce.
• We ask that companies provide evidence of board oversight, due diligence, and remediation of adverse impacts to people arising from their business practices.