CLAIRE FELGATE: Hello, I'm Claire Felgate. And I'm a managing director in BlackRock's client business. We know that stewardship is a really important part of what we do for our clients here at BlackRock. So we've created a series of short videos to discuss key trends and topics in this space.
In this video, we'll be covering how investment stewardship works at BlackRock and how our stewardship team supports long-term value creation in our clients portfolios. I'm delighted to be joined by Sandy Boss, our Global Head of Investment Stewardship, to help bring stewardship to life for us. She will cover how stewardship fits into BlackRock's broader purpose and the team's priorities and focus areas. Sandy, over to you.
SANDRA BOSS: I'd like to start with a word about BlackRock, who we are and what we do. As an asset manager, everything that we do is rooted in our fiduciary duty to our clients. We're working every day to help our clients, the true owners of the assets that we manage, achieve their financial goals.
So those clients, who are they? They're pension funds, they're governments, they're insurance companies, endowments, universities, charities, and individuals. And the people that our clients serve are investing for very long-term goals. Many are looking at decades into the future: preparing for their retirement, paying for their children's educations, buying homes, or starting businesses.
The financial security that they are seeking is not created overnight. It's a longterm endeavor, and we took a very long-term approach. 90% of our listed equity investments on behalf of our clients are in index funds.
Now, our clients depend on BlackRock to help them achieve their investment goals. What my team does, stewardship, is integral to BlackRock's fiduciary duty and purpose. It's very consistent with our fiduciary duty as an asset manager that BlackRock Investment Stewardship's purpose is to help companies in their efforts to create long-term durable financial performance for our clients.
Stewardship serves as this incredibly important link between our clients and the companies that they're invested in. The trust that our clients place in us gives us a great responsibility to advocate on their behalf. And that's what we're interested in hearing from companies about their strategies for how they navigate the challenges and seek the opportunities that they're facing.
As we are long-term investors on behalf of our clients, the business and governance decisions the companies make will have a direct impact on our clients investment outcomes and their financial well-being. We're a supportive, long-term investor on behalf of our clients. And we're always informed by our investment convictions.
The economic interests of our clients are generally very well-aligned with the ones of the companies that we're invested in for them. So with that in mind, our stewardship approach has three key parts. First, we're continuously, year-round, engaging with companies. And we're doing this throughout the year. That's fundamental. We believe it leads to constructive outcomes for the investee companies and our clients alike.
Our analysts have sector expertise. They have local market knowledge. So they can understand these salient, material issues and have informed discussions with company management.
The second thing we do is vote on our clients behalf at shareholder meetings when they authorize us to do that. With our votes, we provide feedback to companies on their corporate governance and we may signal concerns if we have them. Our voting is always solely informed by our fiduciary duty to our clients as an asset manager looking after our clients longterm economic interests. Now, we're also helping more and more of our institutional clients in EMEA and around the world vote according to their own preferences with our Voting Choice offering.
The third thing that we do is we work toward high quality market-wide governance and sustainability norms. We're very heartened by the progress toward globally consistent sustainability disclosures. But I have to say, the journey toward global standard is not without some complexity. We definitely appreciate how challenging it is for our European clients and all European companies to navigate all of the changes in sustainability codes and regulation.
Now, our stewardship team is uniquely resourced to bring a globally consistent, locally relevant perspective. We have one of the largest investment stewardship teams in the industry, now about 70 governance and sustainability professionals. This team ensures that our engagements with companies are globally and locally relevant, as the companies that we invest in deserve to have that type of coverage from us. Last year, we had more than 3,600 engagements with more than 2,400 companies in 55 country markets. More than 900 of those engagements were with EMEA investee companies.
We also have one of the largest stewardship teams in EMEA itself, and that EMEA governance and sustainability expertise hails from 10 different countries. And our team has a phenomenal understanding of local language, markets, and regulations that we think is a real differentiator. Also differentiating is the fact that the EMEA stewardship team and our EMEA clients can always tap into a wealth of expertise on governance and sustainability from around the world within BlackRock.
BlackRock's investment in stewardship reflects a commitment to the importance of engaging with boards and management of the companies that we're invested in for our clients. And it reflects our commitment to working harder every day to meet our clients needs and expectations when it comes to how we steward the assets they trust us to manage.
Now, governance is at the heart of what we do in stewardship at BlackRock. That's something I really want to emphasize. We're particularly focused on governance because we believe that well-governed companies are best positioned to navigate the range of risks and opportunities that come their way. Three out of our five engagement priorities focus on traditional governance issues that we think are important to our clients long-term economic interests: board quality and effectiveness; strategy, purpose, and financial resilience; and thirdly, incentives that align with value creation. And the top four reasons for not supporting directors in our voting this past proxy season were all governance-related: lack of independence, lack of board diversity, director overboarding having too many commitments, and compensation that we felt was not aligned with long-term value.
Importantly, our stewardship also focuses on material sustainability risks. We believe when companies are well-governed and managing material sustainability risk, that translates into durable economic returns for our clients. That's why the remaining two of our five engagement priorities relate to material environmental and social issues.
First, we're engaged with companies on climate and natural capital. We did that more than 2,000 times last year. It's second only to board quality and effectiveness in terms of our engagement intensity.
Secondly, we firmly believe a company's impact on people has a direct effect on its ability to generate long-term durable profits for shareholders. We really see a mutually beneficial relationship between companies and the employees, customers, suppliers, and communities that they rely on. We think that's a prudent way for a company to run a business well over the long-term.
Now, our investment convictions inform our engagement and voting on climate risks and opportunities. In our view, the best economic outcomes for our clients will come through an orderly energy transition that recognizes the needs of consumers and other stakeholders. Our work engaging and voting on behalf of our clients on climate-related issues is unchanged, focusing on the material risks and opportunities that very significant energy transition poses.
This proxy season has absolutely underscored our belief that constructive stewardship can contribute to companies making progress on their climate plans and disclosures, particularly where that's a material risk for the company. Many companies are making great progress, but not all. And again, this year we signaled concerns about climate plans and disclosures at hundreds of companies when we were voting on behalf of our clients.
Now, the events of the past 12 months have also reinforced our view that the pathway to decarbonization is difficult to predict, and it will not occur in an easy straight line. Environmental and social pressures on companies are undoubtedly intensifying. And environmental disasters like drought, fires, floods, those are becoming more frequently.
Energy prices are soaring. Demand has surged with the post-COVID restart. And the war in Ukraine not only is taking a terrible humanitarian toll, but it's really exacerbated supply shortages, which are a function of not just underinvestment in renewable energy, but also underinvestment in traditional energy.
Right now we see people and companies globally struggling to cope with inflation at levels that we haven't seen since the 1970s. And much of society is now looking to companies to fill policy gaps that are frankly leaving them increasingly desperate. And all of this is resulting in market turmoil that's left policymakers, companies, and our clients uncertain about the way ahead.
So as investors on behalf of our clients, we're focused on the fact that companies are increasingly facing environmental and social risks and opportunities that are material to companies long-term profitability. Our approach remains anchored on investment convictions about what drives long-term value for each company. But we aren't regulators. This is an important point. We don't tell companies how they should run their business. That's the job of company management overseen by boards.
So let me conclude that despite the difficult macro-economic backdrop, we're seeing many companies demonstrating remarkable resilience, evolving their business, really doing a fantastic job capturing opportunities, managing risks, governing themselves well. And as a long-term investor, our stewardship team really looks forward to continuing to engage with investee companies on the topics that are most important to their ability to create durable, longterm value for our clients.
Endnotes BlackRock AUM estimate based on figures reported in BlackRock Inc.’s 2020 Annual Report, as of December 31, 2021, which indicated that nearly 43% of total equity AUM was held in iShares ETFs, and a further 46% of total equity AUM was invested in index strategies on behalf of institutional clients. References to “the 2021-22 proxy year” throughout this video covers the period from July 1, 2021, to June 30, 2022, representing the U.S. Securities and Exchange Commission’s (SEC) 12- month reporting period for U.S. mutual funds, including iShares. References to “previous year” or “last year” cover the period from July 1, 2020, to June 30, 2021. Proxy year engagement data: Source: BlackRock. Sourced on July 11, 2022, reflecting data from July 1, 2021 through June 30, 2022. More information can be found in BlackRock Investment Stewardship’s Voting Spotlight: https://www.blackrock.com/corporate/literature/publication/2022-investment-stewardshipvoting-spotlight.pdf
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