Investment giant BlackRock issued its 2022 Investment Stewardship Principles. They also published a shorter summary fact sheet to outline the updates. The policy principles cover seven main themes:
- Boards and directors
- Auditors and audit-related issues
- Capital structure, mergers, asset sales, and other special transactions
- Compensation and benefits
- Environmental and social issues
- General corporate governance matters and shareholder protections
- Shareholder proposals
In this post, I highlight a few of the E&S-related updates – my colleague John Jenkins covered board diversity expectations on TheCorporateCounsel.net and my colleague Emily Sacks-Wilmer covered changes to executive compensation principles and voting guidelines on CompensationStandards.com.
With regard to climate risk, the firm stated they “encourage companies to demonstrate that their plans are resilient under likely decarbonization pathways, and the global aspiration to limit warming to 1.5°C. We also encourage companies to disclose how considerations related to having a reliable energy supply and just transition affect their plans.”
But it doesn’t stop there. Auditing climate risk/carbon matters is explicitly called out by BlackRock, saying they
“…expect increased scrutiny of the assumptions underlying financial reports, particularly those that pertain to the impact of the transition to a low carbon economy on a company’s business model and asset mix. In this context, audit committees, or equivalent, play a vital role in a company’s financial reporting system by providing independent oversight of the accounts, material financial and non-financial information, internal control frameworks…”
In my opinion, properly scrutinizing assumptions related to a low carbon transition needs a non-traditional audit team that includes technical expertise in climate science, operations, pollution control technologies and environmental regulatory compliance to augment financial aspects. In addition, I’d like to see audits include meaningful professional skepticism applied to plans for/uses of carbon offsets within transition plans.
Concerning ESG disclosures, BlackRock states it encourages companies to use the TCFD four pillars framework and is open to “standards other than that of the Sustainability Accounting Standards Board (SASB), and reiterate our ask for metrics that are industry – or company-specific.” Clearly, this opens the door for potentially reporting under ISSB, EFRAG, GRI or possibly even a final SEC climate disclosure rule.
Finally, in terms of what I am covering in this blog, the firm
“… introduce[s] our position that companies or shareholders proposing to change a company’s corporate form (e.g., public benefit corporation) should put the measure to a shareholder vote, if not already required to do so under applicable law. Managers or shareholders proposing the changes should clearly articulate in their proposal how shareholders and different stakeholders would be impacted.”
