UK law supports BlackRock climate-related shareholder proposals pushback

Tom Proverbs-Garbett of Pinsent Masons, who specialises in corporate governance, was commenting after the asset management company recently said that it is “likely to support proportionately fewer” climate-related shareholder proposals during this shareholder meeting season than in 2021.

A growing number of major corporations are facing shareholder-tabled proposals designed to influence the way those corporations respond to the climate crisis.

BlackRock said it had noticed an increase after the US Securities and Exchange Commission (SEC) revised guidance to make it easier for shareholders to table climate-related proposals. It said, though, that in its view, “many of the proposals coming to a vote are more prescriptive and constraining on management than those on which we voted in the past year” and that it is “likely to support proportionately fewer this proxy season than in 2021, as we do not consider them to be consistent with our clients’ long-term financial interests”.

BlackRock said: “BIS (BlackRock Investment Stewardship) is focused on supporting companies as they address the material business challenges they face, including the decades-long transition to a low carbon economy. In our voting determinations it is crucial that we take into consideration the context in which companies are operating their businesses. As we engage companies in an active dialogue about the climate-related risks and opportunities in their business models, we advocate for steps aligned with our clients’ interests as long-term shareholders.”

“Our voting on our clients’ behalf, where so authorised by them, signals our support for – or concerns about – a company’s approach and will always be undertaken with the appropriate consideration of our clients’ long-term economic interests as their fiduciary,” it said.

Tom Proverbs-Garbett said “BlackRock's approach arguably just reflects the legal position, at least in the UK. Directors have certain statutory duties, including the duty to exercise independent judgment and to make only the decisions they honestly believe will promote their company's success. They need not – should not – do not what someone else, such as a shareholder, suggests or directs, absent a formal resolution. Similarly, where directors have acted in good faith – that is, honestly and in awareness of their duties – a court is very unlikely to use hindsight to second guess commercial decisions.”

“In that context, one can better understand Blackrock's assertion that this is not a retreat from its position that climate change is a crucial management matter – in particular, that appropriate transition planning is in place – but rather a recognition that in dealing with these difficult issues shareholders should not try to be backseat drivers,” he said.

Emilie Jones, an expert in climate-related litigation at Pinsent Masons, said businesses interested in how shareholder activism in relation to climate change might impact on them would note BlackRock’s announcement with interest.

Jones said: “A significant feature of the 2021 AGM season was the growth of support by major institutional investors for resolutions seeking to compel companies to take increased action to help mitigate climate change. However, as BlackRock’s latest commentary highlights, asset managers and other institutional investors will not support such resolutions unquestioningly. They are likely to scrutinise climate-related resolutions carefully, on a case-by-case basis and in the context of current economic and geopolitical conditions, to determine whether the proposals are in the best long-term financial interests of their stakeholders.”

While Jones said company directors will welcome the particular caution BlackRock expressed about resolutions which are unduly prescriptive or constraining on the decision-making of the board, she warned businesses to continue to expect significant shareholder scrutiny and activism in relation to climate change.

“There is a strong focus in BlackRock’s paper on the importance of robust reporting by companies about how they are addressing the risks and opportunities for their business created by the energy transition,” Jones said. “Companies which have well-developed transition plans in place and deliver effective reporting are likely to find themselves less exposed to challenge through successful shareholder resolutions. With increased statutory and regulatory requirements already compelling many businesses to improve their reporting in relation to climate change issues, shareholder activism is a further driver for change in this area.”