BlackRock’s co-founder and vice-chairman Barbara Novick will take control of the firm’s stewardship efforts as it seeks to strengthen its ESG focus in the index space.
Larry Fink made the announcement in his latest CEO letter for the asset management giant.
Fink added that existing global head of investment stewardship, Michelle Edkins, will continue to lead the group day-to-day as he has done since 2011.
This change was highlighted by Fink as part of plans to double the size of the investment stewardship team over the next three years.
‘The growth of our team will help foster even more effective engagement with your company by building a framework for deeper, more frequent, and more productive conversations.'
Fink said the increasing use of index funds is transforming fiduciary duty of the firm.
Also, in a bid to improve oversight, Fink added that BlackRock will also look to sell securities of companies pursuing dubious ESG/SRI directions within its $1.7 trillion active funds range.
However, expanding on Novick's new role, Fink said BlackRock cannot do this in its index offering as long as the firm remains in the relevant index.
'As a result, our responsibility to engage and vote is more important than ever. In this sense, index investors are the ultimate long-term investors – providing patient capital for companies to grow and prosper.'
Question round for CEOs
Addressing other companies' CEOs, Fink said in order to sustain their financial performance they have to understand the societal impact of their business.
This is as well as the impact on the growth of structural trends such as slow wage growth, rising automation and climate change.
‘Of course, we recognize that the market is far more comfortable with 10Qs and coloured proxy cards than complex strategy discussions. But a central reason for the rise of activism – and wasteful proxy fights – is that companies have not been explicit enough about their long-term strategies.’
Fink added that BlackRock will pay close attention to how diverse boards of companies are.
‘Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to group-think or miss new threats to a company’s business model.’
In conclusion he said companies must ask themselves the following questions:
- What role do we play in the community?
- How are we managing our impact on the environment?
- Are we working to create a diverse workforce?
- Are we adapting to technological change?
- Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world?
- Are we using behavioural finance and other tools to prepare workers for retirement, so that they invest in a way that that will help them achieve their goals?