Oliver Balch talks to Ray Cameron, head of stewardship for the Americas, about the asset manager's new approach to demanding greater transparency from companies on ESG
When activist investors demanded that consumer goods giant Proctor & Gamble report on its deforestation risks in October, alleging links between its loo roll business and unsustainable logging, they were as delighted as they were surprised when BlackRock voted in favour.
According to Friends of the Earth, BlackRock – the world's largest asset manager – has had 16 previous opportunities to vote for resolutions to halt deforestation since 2012. It declined every one of them.
The green campaign group consequently accused the iconic US investor of being slow to walk the talk of its CEO Larry Fink, who, in a now famous letter to clients, declared that companies should make a “positive contribution to society” as well as profit.
Many in sustainability circles herald Fink as a modern-day messiah. Others are more sceptical
It is a message subsequently reinforced through ambitious statements on climate change and other “non-financial” risks. The economic disruption caused by the Covid pandemic has only reinforced his viewpoint, Fink told delegates at a two-day sustainability summit organised by BlackRock over the summer.
Many in sustainability circles herald Fink as a modern-day messiah. Others are more sceptical. That list includes Wall Street’s old-timers, who wonder what he’s been smoking, and environmental activists, who smell a (greenwashed) rat.
So, what’s going on exactly? Has BlackRock changed its spots with the P&G vote?
I sat down with Ray Cameron, head of the firm’s investment stewardship team for the Americas, ahead of the P&G vote, so didn't ask him specifically about that decision. But asked about BlackRock's corporate engagement strategy on climate he pointed to BlackRock's move at the start of the year, when it asked all companies in its portfolio to publish disclosure aligned with the Sustainability Accounting Standards Board (SASB) standards. It has also publicly endorsed the conclusions of the Task Force on Climate-related Financial Disclosures (TCFD).
And he quoted from BlackRock’s 92-page investment stewardship report, published for the first time in September, that the firm voted against 53 companies for their sluggish climate performance in 2020. A further 191 are “on watch” and could face a thumbs-down at their next shareholder meeting if progress isn’t made.
Soft-spoken yet quietly assertive, Cameron offers a two-fold rejoinder to BlackRock's critics. The first mirrors the default response of asset managers to almost any critique: namely, that BlackRock is merely fulfilling its clients’ wishes.
In our hour-long interview, it is a theme he returns to repeatedly. But the client card can play both ways. On the one hand, if the asset owners in BlackRock’s $7.4tn portfolio express disdain for sustainability issues, then it leaves Cameron and his colleagues in a pickle. Either they turn down their custom or they follow their clients’ mandate.
If our clients choose to express their investment desires through indices that have carbon-intensive companies, we will continue to have exposure there
Cameron is unapologetic in opting for the second: “If our clients choose to express their investment desires through indices that have carbon-intensive companies in them, then we will continue to have exposure there.”
On the other hand, BlackRock could – and does – argue that pushing its clients towards more sustainable stocks is a fulfilment of its fiduciary duty. After all, what is the more prudent investment: a small-cap clean energy provider with a next-gen technology, or a legacy oil company with a balance sheet overloaded with soon-to-be stranded assets?
While some hard-nosed investors might baulk at being told to sweeten their profits with sustainability, investors increasingly acknowledge the relevance of climate-related risks and other social and environmental imponderables, Cameron insists. The nature of BlackRock’s client base – think your classic pension fund: ie institutional, long-term, rewardingly dull – makes them particularly open to such arguments.
The company’s regional investment stewardship head admits that voting is important, both as a means of making directors accountable and as a way of issuing a “globally accepted signal of concern”, but says it is the last step in a longer chain, one that begins with in-depth analysis of companies’ sustainability performance and, if necessary, a follow-up conversation with management. Cameron’s job, in other words.
With respect to shareholder proposals, his position is straightforward: “We look at them on a case by case basis and in the context of our overall engagement with the company.”
Naturally, public attention focuses on the annual general meeting, what with its results-day razzmatazz and possible shareholder revolts. But Cameron draws on one of many baseball metaphors in our interview to argue that the hard work happens in the off-season, when he and his team of 45 colleagues probe and press the companies in their portfolios.
Last year, the company had direct interactions with 61% of its clients, measured by value of their equity investments. An “interaction” is more than just pinging out a generic email, Cameron clarifies. Possibilities range from a call to double check some data, say, through to an in-person meeting to quiz the board on future strategy.
Because such discussions happen behind closed doors, however, it’s hard for others to know what’s said and, more importantly, what then happens as a result. Hence, the widespread scepticism, as Cameron himself concedes: “Often when people think of engagement, they think of it as a black box.”
The more its clients play ball, the stronger BlackRock’s mandate to hold companies’ feet to the fire
BlackRock is seeking to correct this with a commitment to greater transparency, as per the aforementioned stewardship report. Case studies are mostly anonymised (“a UK hotel and pub company”, “one of Italy’s largest banks”) and the insights tend towards the generic (“Engagement is a marathon, not a sprint in Asia”). Still, it’s a step in the right direction.
Some will never be satisfied. BlackRock’s Big Problem, for instance, a network of pressure groups, damns the US asset manager as one of the world’s greatest corporate contributors to climate change. “To save our climate,” it says, “that needs to change.”
And research firm Massif Capital recently issued a scathing report about sustainability-focused exchange traded funds (ETFs). Not only do polluters habitually slip through the net, it alleges, but ETFs are gobbling up capital that could be going to real corporate change-makers. Guess who has mopped up 45% of this market? BlackRock.
Like the P&G vote, the Massif Capital report was published after our interview, but BlackRock appears sold on the idea that sustainability is not only compatible with financial returns, but actively reinforces them. For an asset manager of its magnitude, that’s no small shift. Next step will be to persuade its clients of the same. The more they play ball, the stronger BlackRock’s mandate to hold companies’ feet to the fire – be that in private or under the full glare of the stadium lights.
This article was amended on 25/11/2020 to clarify that Oliver Balch's interview with Ray Cameron was held ahead of the P&G vote and the Massif Capital report.