Black Rock, Morgan Stanley, and other Banks Tightening their ESG Reporting Policies

By Pianpian Wang

A recent report shows that North American companies lead in reporting on carbon emissions, but not in implementing action. There has been no pressing motivation or incentive for businesses to engage in concrete agendas to reduce their carbon emissions. However, this situation is changing.

BlackRock, one of the world’s largest asset managers, recently indicated that it has taken voting action against 53 companies that “have repeatedly ignored climate demands from investors”. According to BlackRock, voting action means that they voted against the executive management of these companies, including voting against re-election of one or more members of a company’s board, voting against the discharge of directors or the entire board in certain European markets, or voting for one or more climate-related shareholder proposals. Other than these 53 companies, BlackRock also put another 191 companies on the watchlist and will take similar action if these companies do not make “significant” progress in 2021.

BlackRock’s move has sent a clear and strong signal to the business sector that investors are getting more and more serious about carbon emission reduction and related climate risks. A company that does not take climate action will not be attractive to investors or funding support.

This is just the beginning. Sustainable investing – the integration of environmental, social, and governance (ESG) factors into analysis and decision-making – has been steadily increasing even during the dreadful time of COVID19. Investors want to give money to companies that have a future, and they started looking into two primary areas: carbon emission disclosure, and (or) decarbonized investment.

Corporate carbon emission disclosure reflects that a company cares about the environment that we share and live within, indicating that the company understands the potential legal and financial risks due to the rapid development of climate policy. Disclosing your company’s carbon emissions also shows your company has a strong sense of responsibility and transparency to communicate with relevant stakeholders (customers, investors, and the public). If the company has a proactive carbon reduction agenda to go with carbon emission disclosure, as a positive sign, it shows that the company prepares itself well to deal with challenges in both the short-term and long term, which adds competitive edges compared to its competitors.

Similarly, decarbonized investment is another trend that investors are paying attention to. In recent years, with falling costs for renewable energy and energy storage technologies, fossil-fuel-related investment is losing its charm to investors. According to a report from the University of California, Berkeley, a potential 90% cut in carbon emissions for electricity in the US by 2035 is highly possible. Morgan Stanley announced last week that it will begin reporting the carbon emissions resulting from its lending and investments, which is a major step in the direction of green investment. These updates provided a glimpse that investors are getting ready to shift gears towards low carbon activities and development while cutting off fossil-fuel-related investment.

Climate change poses many challenges but also presents opportunities. As always, the opportunities belong to those companies that are well-prepared and ready to embrace a new mindset that environmental protection and economic development go hand in hand.