BlackRock has called on companies to tackle deforestation along with biodiversity loss, ocean conservation, and pollution in its guidelines on investment stewardship.
The world’s largest asset manager said it would be prepared to support relevant shareholder proposals or vote against the re-election of company directors that fail to disclose or effectively manage risks to ‘natural capital’.
In October 2020, BlackRock supported a shareholder resolution that called on Proctor & Gamble to report on the deforestation resulting from its palm oil production.
Likewise, the company’s high-profile chairman and CEO, Larry Fink, has often spoken in favour of pushing the sustainable investment agenda and even wrote letters to other CEOs in support of ESG issues. In its recent BlackRock Investment Stewardship (BIS) briefing, the company said agricultural and resource extraction activities were among the key drivers of deforestation.
It added preserving forested areas is key to the economic viability of all industries, given they will continue to be relied upon for the products and services that companies provide, and that more than half of global GDP is moderately or highly dependent on nature, according to the World Economic Forum.
Furthermore, companies seen as not having a sustainable approach to forestry will increasingly be at risk of incurring financial and reputational damage.
BIS said investor expectations of how companies manage their dependence and impacts on natural capital are growing. The report added companies that report sufficiently on their approach to managing and mitigating deforestation risks are likely to be rewarded by investor backing.
The investment giant asked companies to disclose their capital expenditures, their long-term strategies, and how material natural capital risks might affect their business.
However, in 2019 Friends of the Earth, Amazon Watch, and Profundo found that BlackRock was one of the three shareholders in 25 of the world’s largest publicly traded companies posing a deforestation risk.
The report also found that BlackRock’s investment in deforestation-risk companies increased between 2014 and 2018, reaching $1.6bn.
Likewise, in 2020, research published by Profundo and Friends of the Earth noted that all eight members of the Consumer Goods Forum (CGF) of 2010 committed to contributing net-zero to deforestation by 2020. Between 2012 and the research’s publication date, BlackRock, Vanguard, and State Street Global Advisors voted against or abstained from all 16 shareholder resolutions calling for action on deforestation.
Aside from directly negating its commitment to natural resource stewardship, BlackRock has joined in the market shift in favour of ETF usage, which non-profit think-tank, Planet Tracker, said was a key mechanism for investing in deforestation-intensive companies.
A report published by the think-tank in 2020 found ETFs offer investors the opportunity to back products such as synthetic strategies and non-transparent active ETFs, which it said lack the requisite transparency for environmental stewardship.
Furthermore, synthetically-replicated ETFs do not offer the same voting rights as physically-backed strategies and are based on derivative components – options, securities lending, collateral – that are unknown to investors themselves.
Much like synthetic products, Planet Tracker fears non-transparent active ETFs may allow asset managers to own shares, or proxy securities, of deforestation-linked companies without having to disclose this fact at the time.
Since the EU’s decision not to ban synthetic ETFs, they have grown over recent years, with BlackRock recently adopting them, having been outspoken against them for some time. Professional investors are now also calling for wider adoption of non-transparent active strategies.
Of the $1.6bn BlackRock had invested in deforestation-risk companies in 2018, some 94% of this was via index funds. The Planet Tracker report added the company was one of three making up 70% of the ETF issuer market, and therefore a key arbiter of the industry’s contribution to deforestation.