taking the long view blackrock's approach to investor stewardship

Taking the Long ViewBlackRock’s Approach to Investor Stewardship

Steve MonnierDirectorCorporate Governance & Responsible Investment, EMEAemail: [email protected]

May 28th, 2015

For Professional Clients and Qualified Investors OnlyCG-0040

Contents

2

1. BlackRock’s philosophy to responsible investing in the 21st century

2. Responsible investing at BlackRock in practice

a) Analysis

b) Engagement – how we use our voice

c) Proxy voting – a process as an engagement mechanism

d) Overarching proxy voting principles

e) ESG integration in the investment process

f) Case study

3. Market trends and what we are seeing at BlackRock

4. corporate governance and responsible investing in the

Appendix

Who’s investing in RI strategies?

Responsible investment by asset class

United Nations Principles for Responsible Investment

Investor transparency on voting and engagement

Where to find us


Responsible investing in the 21st century

For Professional Clients and Qualified Investors Only

Philosophy behind responsible investing at BlackRock

4

1. Protect and enhance the economic value of the companies in which we invest on behalf ofclients

2. Consider ESG factors because of their impact on long-term shareholder returns or economicvalue

3. BlackRock does not make social, ethical or environmental value judgments on behalf of ourclients

CGRI Team Look at ESG FactorsExpect companies to

manage ESGrisks


How a responsible investment program helps protect client assets

We endeavour to integrate responsible investment principles, as applicable to managementstyle, into the investment process across BlackRock’s US$4.652 trillion total assets undermanagement. *

Our Corporate Governance and Responsible Investment program helps us fulfill ourfiduciary duty to our clients to protect and enhance the economic value of their assets.

Corporate governance andenvironmental or social

issues impacting ourinvestments

With management or boardmembers on corporategovernance, including

social, ethical andenvironmental matters

At company annual generalmeetings and special

meetings in the best long-term economic interests of

shareholders

In the market to understandand contribute to thedevelopment of best

practices that promote long-term shareholder value

creation

ANALYZINGENGAGING

(COMMUNICATING)VOTING ENGAGING

Our responsibilities as a fiduciary to our fund investors include

Implemented through the CGRI team

* As of 31/12/2014


Engagement: How we use our voice

We engage with companies for four main reasons

During voting process

when clarification of

company information is

required

An event at the

company that has

impacted or may impact

long-term company

value

Company is in a sector

or market where there is

a thematic governance

issue material to

shareholder value

Proprietary governance

risk model identifies

company as lagging

peers on ESG matters

that may impact

economic value

We vote at approximately 15,000 shareholder meetingsWe vote on over 130,000 proposals and

conduct approximately 1,400 engagements annually


1

BlackRock’s proxy voting process as an engagement mechanism

Voting is the broadest based level of engagement we have with companies; it provides a routineopportunity for investors to provide feedback to the board and encourages board andmanagement teams to consider and address investor concerns

Remainder are flagged foradditional research

Oversight committees receivemonthly vote reports and generallymeet quarterly to review voting

Straightforward meetings proceed tovote execution

If warranted, schedule anengagement with the issuer’sexecutives or board members todiscuss key questions

Internally developed guidelines areapplied in determining how to vote

2 3

For exceptional conflict issues,votes are cast as instructed byindependent fiduciary

RESEARCH ANDISSUE SPOTTING

REVIEW ANDENGAGEMENT

VOTEEXECUTION

Vote positions reconciled againstholdings to ensure clean operatingenvironment

Leverage expertise of portfoliomanagers as necessary

In depth review of particularlycomplicated or controversialmatters

Votes are executed through anelectronic platform

Review of research from leadingproxy advisory firms, companymaterials, broker research, andother publicly available news flow

7For Professional Clients and Qualified Investors Only

CG-0040

Overarching Proxy Voting Principles have been constant over time

Boards and directors

• Independent leadership / balance of power

• Regular re-election of directors

• Sufficient independent directors with diverse and relevant skills and expertise to represent and protect the interestsof all shareholders

• Formal and transparent appointment process informed by outcomes of periodic board performance evaluation

• Board committees to take lead on matters of audit and risk, nominations and governance, and compensation

Auditors and audit-related issues

• Independent auditors

• Quality audit assessment each year

Capital structure, mergers, asset sales and other special transactions

• Process overseen and reviewed by independent directors

• Absence of poison pills

Compensation and benefits

• Performance metrics

• Link to strategy over time

• Pay for performance aligned with peers

Environmental and social factors

• Companies should identify business-specific risks and opportunities related to environmental and social impactsand explain oversight processes

General corporate governance matters

• Provision of sufficient information for investors to understand the company and its performance

• Right to vote on substantive matters of governance such as change of company charter

• Right to call special meeting of shareholders and to propose resolutions to the shareholder meeting


CG-0040

Investment evaluation to buy/sellexplicitly includes ESG factors:› Screens› BlackRock proprietary ESG rating› Themes (e.g. renewable energy)› RI Indices

Feedback mechanism into Step 2 based on the mandate and product type

ESG integration into the investment process

Responsible Investment mandate

Relationship management, engagement and proxy voting

Analysis of ESG risks and opportunities at our aggregated investments

Aggregation of investment held by BlackRock globallyacross RI and traditional mandates

Investment evaluation to buy/sellmay include ESG factors:› Fundamental – company analysis› Scientific Active – quant modelling› Index – not applicable

STEP 1

STEP 2

STEP 3

Traditional mandate

STEP 4

STEP 5

STEP 6


What we are seeing


Market trends

• In the past two years have seen a growing commitment on the part of institutional investors and assetmanagers to the Principles for Responsible Investment. 2

• Increased in assets under management using SRI strategies from $13.3 trillion in 2012 to $21.4tn in2014 1

• Asset managers are increasingly pursuing shareholder engagement strategies on ESG issues, usingdialogue with portfolio companies as a means to improve the companies’ ESG practices or disclosure. 2

• For both money managers and institutional investors, climate change remains the most significantenvironmental factor in terms of assets. 2

• In Europe a shift towards double voting rights in France and Italy and supported by Shareholder RightsDirective (SRD2), signals some movement away from the principle of one share one vote.

1. 2014 Global Sustainable Investment Alliance Review

2. “Report on US Sustainable, Responsible and Impact Investing Trends 2014”; US Forum for Sustainable and Responsible Investment.


CG-0040

What we are seeing at BlackRock

1. Significant interest in ESG integration in Europe, followed by growing interest in Americas andAustralia.

• Growing market 1

• Mainly client driven

• Significant increase in ESG-related questions

• More mandates require some level of ESG integration

– Interest primarily in ESG integration versus RI product, although impact investing and missionbased investment are significant RI product drivers (but of relatively low AUM comparatively)

• Public funds, government and other financial companies (e.g. sub-advised clients and insurancecompanies) comprise the majority of demand among BlackRock’s clients

2. Voting issues of primary concern vary by region but director elections are key globally

Disclosure

Engagement in advance of AGM on contentious proposals.

3. Rise of investor activism in Europe highlighting the importance of ongoing shareholder dialogue anddisclosure

1. 2014 Global Sustainable Investment Alliance Review


CG-0040

Q&A


Appendix


Who’s investing in BlackRock's RI strategies?

15

*As a percentage of BLK’s RI Product Assets Under Management as of 31/12/2014, $252 billion USD or approx. 5.4% of the firm, as a proxyfor the global market

By Client Type

Health 3% Environment 8%

Ex-Weapons 12%

Ethical 77%

By Topic

EMEA 36%

Asia-Pacific 7%

Americas 57%

Public Fund27%

CommingledFund 6%

Corporation3%

Union/Industry0.7%

Subadvisory2%

Government andOfficial 24%

Health Care12%

Insurance 9% HighNet Worth

0.3%

Non-Profit 2%

ProprietaryMutual Fund

14%

By Region


Responsible investment by asset class

EquityFixed Income Real Estate Real Assets

Fundamental Scientific Index

ESG themedactivemanagement

Environmental& socialscreens

ESGIntegration intofundamentalanalysis

Optimizationsto offseteffects ofscreens onportfolios

Develop andapplygovernance,environmentalor socialsignals

ESGIntegrationthrough quantmodels

ESG themedindex funds andETFs

Environmental& social screens

Activeownership (cannot sell “bad”performers)

Green bonds

ESG themedbond funds

Corporate

Municipal

Emergingmarkets

Sovereigndebtportfolios

Analysis of energy/cost savingopportunities

Consumptionmonitoring

Eco-friendlylandscaping

Regularenvironmentalaudits of ownedproperties

Lighting retrofits

Wastemanagementprograms

Green REITs

Infrastructure

Solar

Wind Farms

Sustainableagriculture

16

Out of 5,175 ESG strategies analysed by the consulting group Mercer, around 57% were in listed equities, 20% infixed income, and the remaining 23% spread across alternatives (Ambachtsheer 2012)


United Nations Principles for Responsible Investment

Principles

1. We will incorporate ESG issues intoinvestment analysis and decision-makingprocesses

4. We will promote acceptance and implementationof the Principles within the investment industry

2. We will be active owners and incorporateESG issues into our ownership policies andpractices

5. We will work together to enhance oureffectiveness in implementing the Principles

3. We will seek appropriate disclosure on ESGissues by the entities in which we invest

6. We will each report on our activities and progresstowards implementing the Principles

BlackRock signed the UNPRI in 2008

The UNPRI is made up of 6 aspirational statements intended to provide a framework withinwhich non-financial, ESG issues can be taken into account in investment decision-making andcorporate engagement


Investor transparency on voting and engagement

18

BlackRock Voting:

Aim to vote all our holdings

Voting in 94 markets

Voting guidelines published

Voting records published annually

Preliminary figures. From 1 July 2013 to 30 June 2014


Corporate Governance & Responsible Investment – where to find us

http://www.blackrock.com/corporate/en-zz/about-us/responsible-investment

What to find:

• Engagement, Proxy Voting & ESG Investment Integration

• Global Proxy Voting Guidelines and Proxy Voting History

• Responsible Investment Reports

• CGRI Quarterly Commentary Reports


CG-0040

http://www.blackrock.com/corporate/en-zz/about-us/responsible-investment

Disclaimers

20

This material is for distribution to Professional Clients (as defined by the FCA Rules) and should not be relied upon by anyother persons.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority.Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394.For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock InvestmentManagement (UK) Limited.

Past performance is not a guide to future performance. The value of investments and the income from them can fall as wellas rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchangebetween currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked inthe case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis oftaxation may change from time to time.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. Theresults of such research are being made available only incidentally. The views expressed do not constitute investment orany other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRockGroup or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in anyBlackRock funds and has not been prepared in connection with any such offer.

© 2015 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ONBLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks ofBlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respectiveowners.


taking the long view blackrock's approach to investor stewardship

Documents