“Not financially material” BlackRock and Vanguard’s support for climate resolutions drops

With $10trn and $9trn in assets respectively, BlackRock and Vanguard remain by far the largest institutional asset managers globally. As the largest shareholders in most of the world’s listed firms, their voting patterns send an important stewardship signal to asset owners, many of whom are invested in their funds.

Both managers have now released their stewardship reports for this year’s AGM season, which show that their backing for climate proposals has declined even further.

This year, BlackRock supported just 20 out of a total of 493 climate proposals—less than 4%. This marks a further decline from last year when BlackRock supported 30 proposals and a significant drop from its peak in 2021, when the asset management giant backed nearly half of all climate resolutions.

Similarly, Vanguard revealed that it had reviewed more than 400 environmental and social shareholder proposals but did not support a single initiative.

“Not financially material”

Both managers justified their increasingly cautious stance on environmental resolutions with the argument that proposals were either “overly prescriptive” or “not financially material,” a reasoning similar to last year.

“The proposals did not address financially material risks to shareholders at the companies in question or were overly prescriptive in their request,” Vanguard explained in its latest Investment Stewardship Report for the US market.

Vanguard said considered proposals calling for specific greenhouse gas (GHG) emissions targets or third-party audits of aspects of portfolio company operations to be “overly prescriptive.”

Similarly, Joud Abdel Majeid, global head of Investment Stewardship at BlackRock, said: “Investors found the majority of these proposals to be overly prescriptive, lacking economic merit, or asking companies to address material risks they are already managing. As a result, these proposals continued to receive low support from shareholders, including BlackRock.”

Energy Giant Votes

This year’s AGM season saw a limited number of shareholder proposals at some of the world’s largest oil and gas firms after Exxon’s surprise announcement in January to take two of its shareholders, Follow This and Arjuna Capital, to court for filing a climate resolution.

The case sparked international outrage among many asset owners, with some of the world’s largest asset owners, such as CalPERS, publicly criticising Exxon’s leadership for infringing on shareholder rights.

This prompted proxy-voting advisor Glass Lewis to recommend a vote against Exxon’s independent director, Joseph Hooley. But despite protests from asset owners, Hooley and his colleagues received the backing of around 90% of all shareholders.

BlackRock has not yet specified how it voted during the Exxon AGM but revealed that it had multiple meetings with the oil giant over the past year.

Vanguard disclosed that it voted in favour of reappointing Exxon’s leadership, despite the row over shareholder rights, but stated that it had raised concerns over shareholder rights.

For the Shell AGM, a record number of investors backed a resolution calling on the oil giant to align medium-term emission reduction targets with the Paris Agreement. Neither BlackRock nor Vanguard backed the proposals but voted instead in favour of Shell’s Energy Transition Strategy.

The latter has been criticised by climate campaigners because it does not foresee emission reductions within this decade.

“In our view, Shell has provided and continues to provide a clear assessment of its plans to manage material climate-related risks and opportunities and continues to demonstrate progress against its Energy Transition Strategy,” BlackRock said.

Both managers are offering their institutional and retail investors voting choice or pass-through voting options, meaning that asset owners now have the option to dissent from their climate stance. However, the limited backing for climate resolutions indicates that few asset owners have taken this up.

Lindsey Stewart, director of Stewardship Research and Policy at Morningstar Sustainalytics, described the voting reports as “striking” but not surprising. “Amid ongoing pushback on all things ESG from more conservative elements of the political spectrum, BlackRock, Vanguard, and other large asset management firms have increasingly emphasised a focus on financial materiality and traditional corporate governance. This emphasis has manifested in recent proxy voting decisions that dissent from company boards’ recommendations with increasing rarity; meaning much lower support for shareholder proposals.”

However, the assumption that climate risks are “not financially material” was questioned by Colin Tissen, investment strategist for Dutch PGGM Investments in a social media post. Tissen said that it was positive to see BlackRock taking an independent stance from proxy voting advisers, but he questioned whether BlackRock’s voting policy truly represented the best long-term shareholder value. “Is BlackRock, possibly feeling pressured over its potential influence, taking the easier route by aligning with management as often as possible?” he questioned.

Earlier this month, Exxon released its long-term production forecast, which expects that crude oil demand will remain at today’s levels in 2050, with the rise of electric vehicles having no significant impact on global oil demand. Exxon predicts that global oil prices will surge as a result of a production shortage. By 2050, more than half of the global energy mix would still come from oil and gas, the oil giant predicts. Other oil producers such as BP and Shell have more conservative forecasts.