BlackRock and Tracking the Interests of Big CRE Investors

BlackRock has pulled back on backing shareholder proposals regarding ESG — the trio of environmental, social, and governance concerns.

“BlackRock voted against a record 91% of all shareholder proposals in 2023 proxy season,” noted Pensions & Investments. “The 9% of ESG proposals that BlackRock supported this year is down sharply from 2022, when BlackRock’s investment stewardship team supported 24% of such proposals, and from 2021, when it supported 43%.”

Is it a matter of getting burned in the political crossfire that’s developed over ESG/? Maybe in part, but even the question is complicated.

In the last few years, ESG has become important in investment in general and commercial real estate in particular. In its 2022 outlook, Colliers declared that “sustainability is no longer a ‘nice to have.’”

“Environmental, Social and Governance (ESG) considerations, particularly environmental ones, are prominent on the investor agenda, with three quarters of investors integrating environmental factors into their strategies,” the firm said in a report.

ESG became such a hot term that the SEC seems ready to clamp down on related investment claims.

Simultaneously, the term has become a political hazard zone.  Several states have proposed or adopted legislation that prohibit or significantly limits their pension funds or other state funds from investing in ESG strategies or from doing business with financial institutions that adopt specific ESG policies.

And then there are the proxy wars. Once, ESG proposals were the playground of activists on the left. Now they’ve become battlegrounds as those on the right copy wording from pro-ESG proposals to form anti-ESG ones, as Observer.com reported early this year. The result, noted Morningstar, is that conservative activists can use some SEC rules from 2020 under which the similar wording can potentially block pro-ESG proposals that year.

Even as of his 2022 letter to CEOs, titled “The Power of Capitalism,” BlackRock Chairman and CEO Larry Fink wrote of “empowering clients with choice on ESG votes.”

“Just as other stakeholders are adjusting their relationships with companies, many people are rethinking their relationships with companies as shareholders,” he wrote. “We see a growing interest among shareholders – including among our own clients – in the corporate governance of public companies. That is why we are pursuing an initiative to use technology to give more of our clients the option to have a say in how proxy votes are cast at companies their money is invested in.”

But this year, at the Aspen Festival, Fink said that he has stopped using the term ESG because of the politicization. “I don’t use the word ESG anymore, because it’s been entirely weaponized” by both ends of the political spectrum, he said. He also noted that the company hasn’t changed its stance on ESG issues. The firm will still talk to investments about decarbonization, corporate governance, and social issues.

In its 2023 global voting spotlight, the company also directly pointed to the volume of shareholder proposals and their quality as the reasons for the change in voting patterns.

“The poor quality of many shareholder proposals is reflected in market voting outcomes globally, largely driven by U.S. dynamics. Median shareholder support for environmental and social shareholder proposals in the U.S. was 15%, down from 25% in the 2021-22 proxy year. In addition, our analysis shows that nearly 70% of environmental and social proposals faced strong market opposition, receiving less than 25% support.”