ESG & Shareholder voting

FPIC stands for Free, Prior, and Informed Consent. This is a right recognized in the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), and in the International Labor Organization (ILO) Convention 169. It allows Indigenous peoples with collective land titles to ancestral territory to give or withhold consent to a project that may affect them or their territories. Once they have given their consent to such a project, they can withdraw it at any stage. FPIC ensures that Indigenous peoples are consulted and able to negotiate the conditions under which a project will be designed, implemented, monitored, and evaluated.  

Unfortunately, FPIC is rarely properly enforced, and many countries lack adequate regulatory policies that outline precisely how “consultation” should take place. This leaves the door open for companies to use manipulative tactics in order to get Indigenous communities to give consent to carry out potentially harmful projects on their territories. In the 2020 report, Investing in Amazon Crude, Amazon Watch documented how oil companies that BlackRock invests in have coerced Indigenous communities in the Amazon to give consent to devastating oil extraction projects on and near their territories. These oil companies will sometimes promise jobs, fuel, food, or other much-needed infrastructure to communities in exchange for permission to operate. As reliance on outsiders increases, many communities experience a weakening of social cohesion, and a loss of their traditional means of survival.

There are certain climate-harming industries that will never be sustainable, like coal, tar sands, and Arctic oil. These must be investment no-go sectors. The science is clear that we need to phase out these fossil fuels as soon as possible, so any investment in them is a risk for our economy and our planet. While ESG exclusionary screens can be a good tool, simply integrating ESG data is vague and in its current form will not eliminate climate-destroying companies from investment funds.

As the world’s largest shareholder, BlackRock has immense power and influence over the entire business community. It can implement public and visible consequences for companies that are not moving fast enough to align with the low carbon economy we need. Companies that are not moving toward science-based targets are not just a risky investment, they are endangering global security, financial and otherwise, and BlackRock has the power to push these companies to change. For more information on BlackRock’s voting record and the potential power of major asset managers see these recent reports from MajorityAction and ShareAction.

In December 2020, BlackRock made a welcome 180-degree turn on its purported strategy as a shareholder, after years of saying voting against management was a last resort and claiming engagement was private, amiable, and behind-the scenes. 

BlackRock, led by Global Head of Investment Stewardship Sandy Boss, now says it plans to take strong voting action – including voting off directors and supporting shareholder proposals – at more companies with greater transparency. This positional change is undoubtedly the result of tireless grassroots efforts, accountability and reporting from shareholder advocacy organizations, client pressure, and changes in leadership within BlackRock itself.

BlackRock still has a lot more to do to truly align its strategy with urgent climate goals, as detailed in this analysis of the 2020 announcement. Ultimately, until there is follow-through on an ambitious plan of action, this new strategy is still just rhetoric and potential evasion of BlackRock’s responsibility and influence as a shareholder.

There are 3 defined types of ESG funds:

1. Exclusionary screens – These exclude bad acting companies from funds based on the screen. These are the most impactful ESG tools because they result in money being taken away from destructive companies, provided the screen criteria is strong enough.
2. Screens focused on engagement and voting mandates – These can be a good tool, as they dictate how these funds vote their shares in associated companies. Unfortunately, they also provide an excuse for asset managers like BlackRock to vote the wrong way with the rest of its funds, thereby negating the impact of the funds in the first place.
3. Impact investing screens – These bring companies that are doing well into funds they might not otherwise be in. While these screens can also be a good tool, they don’t stop the companies that are destroying our planet, which is what scientific consensus tells us we need to do.