BlackRock gives companies detailed climate targets

This week the US is grappling with one sign of a changing climate: shockingly cold weather in places such as Texas. But investors should keep an eye on another sign — that of the changing political climate: on Thursday Lael Brainard, a senior Federal Reserve official, will give a speech on green issues to a key policy conference in Washington.

The fact she is participating at all is significant, given that Fed officials were silent on climate issues during the Trump years. It will be doubly striking if Brainard signals that the Fed will follow its European counterparts in incorporating climate issues into bank stress tests and/or embracing green accounting systems. Watch this space.

BlackRock gets granular on low-carbon ambitions

When BlackRock chief Larry Fink said last month that companies needed to explain how they were preparing for a low-carbon future, critics were quick to point out that his call to action was light on detail. 

But now, BlackRock is looking to clear things up. In a paper published today, its stewardship group explained more explicitly what it expects companies to do in regard to climate risk — and the potential consequences if those expectations are not met.

Companies across the board are being asked to disclose their “scope 1” and “scope 2” greenhouse gas emissions (this covers all of the emissions created directly by a company and the power it purchases to run its operations). Those in “high emitting” industries, will also be expected to disclose their “scope 3” emissions, which covers indirect emissions such as business travel and the emissions created by vendors throughout their supply chains.

BlackRock also wants to see companies set “short-, medium- and long-term targets” to reduce those emissions in line with the Paris climate accord.

This does not go as far as some of its counterparts, which have called for companies to comply with the guidelines set by the Science Based Targets initiative, but it is a big step forward for a large US asset manager. And what is particularly interesting is that BlackRock has made it clear that companies cannot expect to get away with just buying credits to offset their emissions.

“We recognise that companies may use carbon offsets in the near-and medium-term as they innovate to develop the technology that will support further reductions in their overall GHG emissions. We see carbon offsets as an interim complement, though not a replacement for, substantive and sustained long-term emissions reductions plans aligned with science,” BlackRock said in its memo.

For companies that don’t meet these expectations, BlackRock has indicated it will support shareholder proposals that will compel them to fill in the gaps — and may even vote against directors that do not take the issue seriously.

This should have board members “worried,” said Ben Cushing, financial advocacy campaign manager at the Sierra Club. “Based on the expectations laid out today, we should see BlackRock start to vote against directors at almost every fossil fuel company.”

Of course it remains to be seen how BlackRock will follow through. The company has faced criticism for not supporting enough climate-related shareholder actions in the past, but says that its approach has changed.

This year’s proxy season will be the first big test.

All eyes will be on the shareholder proposals filed by members of the Climate Action 100+, a network of investors dedicated to pushing companies to cut emissions. BlackRock joined the group last year, but significantly lagged its peers in supporting climate-related shareholder initiatives.

If the company is serious about living up to Fink’s lofty rhetoric, one would expect different results this time around. We will be following this story closely. (Billy Nauman)

EU gives asset managers more wiggle room in new climate disclosure regulation

Another important story to watch in the coming months is the implementation and development of the EU’s Sustainable Finance Disclosure Regulation (SFDR).

The idea behind SFDR is to stamp out greenwashing and clear up confusion around environmental, social and governance (ESG) investing by forcing asset managers to disclose the impact their portfolios have on people and the planet.

This ambitious rule is a key part of the EU’s green finance initiative. And as our colleagues at FTfm noted last month, the fund management industry is scrambling to meet its requirements.

But sustainability advocates are concerned that demands from the fund management industry have led the EU to water down the regulation too much.

First, the EU delayed the implementation of the rule. Now the EU has reduced the number of metrics that investment managers will need to report — a move that pressure group ShareAction says has “[weakened] the transformative impact this legislation could have”.

One of the biggest complaints from the industry is that companies do not provide the data they need to comply with SFDR. But Maria Van Der Heide, head of EU policy at ShareAction, does not put much stock in that excuse.

For starters, she believes this problem is likely to be only temporary. The EU is reviewing its Non-Financial Reporting Directive — a separate rule set that determines what companies have to disclose to markets — and she expects that it could be modified to cover the data required by SFDR.

And in the interim there are other ways for managers to comply.

“We are of the opinion that investors can engage with companies to ask them to produce this information as soon as possible,” she said. And when that doesn’t work, they can get what they need from third party data providers, she added.

However, even with these changes, she is optimistic about the impact SFDR will have.

“On the one hand, we’re disappointed now . . . but we cannot deny this is a great step forward and it will definitely set things in motion,” she said.

(Billy Nauman)

Charitable giving, impact investing boosted in pandemic

With no shortage of individuals and businesses struggling in the pandemic, philanthropic giving soared in 2020.

Fidelity Charitable, which runs the investment management giant’s donor-advised fund business, granted a record $9.1bn to 170,000 charities in 2020, a 24 per cent rise from 2019. And its total assets in impact investments has grown from $936m to $1.7bn in the past two years alone.

“The numbers are staggering,” Pam Norley, said president of Fidelity Charitable, adding that donors turned in record numbers to their donor-advised funds “to address pandemic and racial equality issues” over the course of the year.

Norley told Moral Money that two-thirds of the grants awarded were “unrestricted”, meaning donors gave the nonprofits full discretion over the use of the funds. “There is increased trust in the system,” she said.

This signals a shift in the industry overall. Donors are taking a more holistic approach with their financial gifts, and not looking to micromanage how they are used.

But this holistic approach cuts both ways — especially when it comes to charitable endowments that support cultural institutions such as museums.

Donors may not want to dictate the minutiae of how their money is spent, but they are increasingly scrutinising how endowment investors are aligning their funds with their values and their mission, said Laura Callanan, founding partner at Upstart Co-Lab, a project of Rockefeller Philanthropy Advisors.

So far, only handful of cultural institutions have embraced impact investing, but Callanan is working to change that. Her organisation recently put out a report highlighting numerous “first movers” that she says dispels the notion that investing in impact is detrimental to financial returns.

US cultural institutions have more than $58bn sitting in their endowments, and that means the impact could be huge. (Kristen Talman)

Tips from Tamami

Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.

As Japan prepares to host this summer’s Olympic Games (which they insist are still happening) the organising committee has inadvertently exposed Japan’s deep-rooted sexism — and has provided the country a rare opportunity to discuss the issue.

Yoshiro Mori, former prime minister, resigned as president of the Tokyo Olympic organising committee late last week after public pressure mounted following his remark that “women talk too much at meetings”. 

Few Japanese expected that the 83-year-old — who is known for a series of gaffes and undiplomatic comments dating back to his time in the office more than 20 years ago — would face consequences when the remark was first reported.

But the games’ corporate sponsors — which face their own pressures to respond to global ESG scrutiny and activism — acted differently this time. A long list of corporations, such as Toyota, came forward to criticise Mori’s comment. Local media outlets have been intensively covering the companies that did, or did not, denounce Mori’s remark.

Japan ranks 121st out of 153 countries in the World Economic Forum’s gender equality ranking. With men such as Mori in power, Japanese women have struggled be heard in their attempts to bring attention to the issue. But with the influential sponsors on their side, the power balance has shifted.

Polls show that about 80 per cent of Tokyo residents don’t want to hold the games this summer due to the Covid-19 pandemic. The local mood is sour, but what if the sports extravaganza could achieve gender equality as part of its legacy?

Chart of the week

Iron and steel production are responsible for a huge chunk of the world’s industrial emissions, and decarbonising the sector is going to be a big challenge. Read all about the race to produce green steel in Michael Pooler’s big read here.

Further Reading

• ESG demand prompts more than 250 European funds to change tack (FT)

• There’s a bad smell to Japan’s corporate governance reform (FT)

• Court throws Biden’s green agenda on to horns of a dilemma (FT)

• Biden wants to create millions of clean-energy jobs. China and Europe are way ahead of him. (Washington Post)

• A Hidden Hurdle in Efforts to Diversify Boardrooms (NYT)