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BlackRock

PRI reporting framework 2017

You are in Direct - Listed Equity Active Ownership » Engagement

Engagement

Overview

LEA 01. Description of approach to engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate whether your organisation has a formal engagement policy.

01.2. Indicate what your engagement policy covers:

01.3. Attach or provide a URL to your engagement policy. [Optional]

01.4. Provide a brief overview of your organization’s approach to engagement

Engagement provides BlackRock with the opportunity to improve our understanding of portfolio companies and their governance structures, so that our voting decisions may be better informed. Engagement also allows us to share our philosophy and approach to investment and corporate governance with issuers to enhance their understanding of our objectives. There is a range of approaches we may take in engaging companies depending on the nature of the issue under consideration, the company and the market.

We engage with companies on ESG issues both in the course of regular face-to-face meetings and when we believe the issue is of sufficient materiality to require a meeting focused solely on ESG matters.  BlackRock’s responsible investment strategy is built on our long standing commitment to meeting client needs through a focus on in-depth research and maintaining dialogue with the companies in which we invest. BlackRock’s standing as a long-term, constructive investor means companies are generally interested to understand our perspective.  In our engagement we address all issues of relevance to company performance, including ESG issues.

01.5. Additional information [optional]

Every year, BlackRock’s specialist Investment Stewardship team of over 30 dedicated professionals engages with about 1,500 companies. Such meetings may also include active portfolio managers with a holding in the company or who are considering investing. It should be noted that BlackRock’s equity investments are predominantly in index strategies so we will be a significant investor in most listed companies in each market.  We engage to protect and enhance the long-term value of our clients’ investments.

We consider various inputs to inform our engagement process.

We take into account:

the significance of the issue and the actual or potential financial impact,

our ability to influence an improvement in business practices,

whether engagement would help inform our voting decision or follow-up engagements, and

management’s responsiveness to investor concerns historically.

To prioritize our engagement process, we consider:

our analysis of shareholder votes;

research by our fundamental investment teams;

< > social, and environmental research;

research by investment banks and external ESG specialists.

For each engagement, the Investment Stewardship team determines our objectives and how best to reach them. The materiality and immediacy of a given issue will generally determine the level of our engagement.  We also determine with whom we should seek to engage at the company.  For instance, on matters of clarification of an issue related to a vote we would most likely engage with management representatives – the General Counsel, Corporate Secretary or head of human resources.  Where we seek to understand a company’s approach to its environmental and social impacts we may seek to meet with the head of corporate sustainability or a representative of the strategy team.  Where we have concerns about the quality of management or of board oversight, we would seek to meet with the relevant board directors, with or without management present as appropriate.  

Our approach to engagement has long been one of having a private dialogue with companies, setting out our views and any concerns and discussing ways these could be addressed. As a long-term investor, often with sizable holdings, we believe it is important to engage in a discreet manner and to build relationships with companies that will enable us to influence change over time when necessary.  We have an escalation strategy such that in the first instance we will engage in private dialogue.  Where we have concerns about a company’s practices, we will set out our expectations in that conversation and leave the company time to consider our feedback, making clear that we will continue to support management in our voting near term as long as we have a strong sense that progress towards addressing our concerns is being made. 

Each year we identify certain priority topics for engagement, which may be our focus for several concurrent years.  Examples in 2016 include cyber security, board gender diversity in markets where there is no market-set target (e.g. US) and climate-related disclosure. 


LEA 02. Reasoning for interaction on ESG issues (Not Completed)


Process

Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

other description

          a track record of underperformance on ESG and financial metrics compared to peers
        

03.3. Additional information. [Optional]

We screen a subset of our portfolios representing broad regional indexes across the globe in which we have significant shareholdings on a quarterly basis. The intent of this screen is to identify laggards in managing ESG considerations to drive proactive engagement where there is a clear nexus between the ESG matter and financial risk. We prioritize individual engagements based on the materiality of the issue under consideration and the size of our holding (or the value at risk).


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take following your engagements.

04.3. Indicate whether your organisation defines milestones and goals for engagement activities carried out by internal staff.

04.4. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.5. Additional information. [Optional]

We assess the effectiveness of our engagements based on the achievement of our engagement goals, as amended once our understanding of the situation has developed. In setting our objectives, we work with portfolio managers and others internally and externally to build our knowledge of the issues, propose a sound course of action and define optimal outcomes (as perceived from the outside). Thus, the measures for each engagement will be different, and the course of each engagement is unique so not all options above apply to every engagement. Generally, we look to persuade the company that the status quo is not acceptable, put forward some ideas for addressing the issue and remain involved to encourage the delivery of fundamental change by management and the board. We are clear that we represent patient capital but that we are not infinitely patient and if we believe progress is not sufficient given the materiality of an issue we will escalate our engagement to a vote against management, possibly through opposing the re-election of the director/s we deem most accountable for the issue.  We remain open minded and adapt our position as we progress the engagement, where appropriate, based on information to hand and developments.


Process for engagements conducted via collaborations

LEA 05. Process for identifying and prioritising collaborative engagement

New selection options have been added to this indicator. Please review your prefilled responses carefully.

05.1. Indicate whether your organisation has a formal process for identifying and prioritising collaborative engagements

05.2. Describe the criteria used to identify and prioritise collaborative engagements

05.3. Additional information [Optional]

In our experience, collective engagement by shareholders can be very effective on policy related issues such as transparency and disclosure (i.e. board disclosure on diversity policies) or enhancements of shareholder rights. However, collective engagement focused on value-related matters, such as strategic direction or company leadership, can be much more difficult to achieve collectively. In practice, collective action is difficult to manage given that shareholders tend to have a range of perspectives. In BlackRock's experience, even where there is agreement that a problem exists, it can be very difficult to agree a single course of action or timeframe in which it ought to be taken. This diversity of opinion is not a flaw in the system, but a strength as it brings a range of alternative solutions to the situation. Nonetheless, it is not always possible to reach a consensus and in many collective engagements shareholders ultimately take their own stance directly to the company. This is further exacerbated in markets with dispersed ownership. For these reasons and given our prioritization of engagements that are closely tied to long-term value, we only occasionally engage companies in collaboration with other investors.


LEA 06. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

06.1. Indicate if you define specific objectives for your engagement activities carried out collaboratively.

06.2. Indicate if you monitor the actions companies take following your collaborative engagements.

06.3. Indicate whether your organisation defines milestones and goals related to engagement activities carried out via collaborations.

06.5. Additional information. [Optional]

While our firm may not define the milestones and goals related to engagement activities carried out via collective engagement, we do track and monitor progress against defined milestones and goals in order to evaluate the progress of collaborative engagement activities when we are a participant.


General processes for all three groups of engagers

LEA 09. Share insights from engagements with internal/external managers

09.1. Indicate if insights gained from your engagements are shared with your internal or external investment managers.

Type of engagement

Insights shared

Individual/Internal staff engagements

Collaborative engagements

09.2. Additional information. [Optional]

Where an engagement shapes our thinking on the quality of management or board leadership, key factors in sustainable long-term value, we would ensure that portfolio managers are aware of our views.  That said, most engagement is about building mutual understanding with companies and providing feedback on routine matters.  It is also important to note that a significant number of the companies in which BlackRock invests are only held in index strategies so there is no active portfolio manager to debrief.   


LEA 10. Tracking number of engagements

10.1. Indicate if you track the number of engagements your organisation participates in.

Type of engagement
Tracking engagements

Individual / Internal staff engagements

Collaborative engagements

10.2. Additional information. [OPTIONAL]


Outputs and outcomes

LEA 11. Number of companies engaged with, intensity of engagement and effort

11.1. Indicate the amount of your listed equities portfolio with which your organisation engaged during the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion (to the nearest 5%)
Specify the basis on which this percentage is calculated

Individual / Internal staff engagements

1234 Number of companies engaged
10 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

Collaborative engagements

0
0 Proportion (to the nearest 5%)

Specify the basis on which this percentage is calculated

11.2. Indicate the proportion of engagements that involved multiple, substantive and detailed discussions or interactions with a company during the reporting year relating to ESG issue.

Type of engagement

% Comprehensive engagements

 

 

Individual / Internal staff engagements

 

 

Collaborative engagements

11.3. Indicate the percentage of your collaborative engagements for which you were a leading organisation during the reporting year.

Type of engagement

% Leading role

 

 

Collaborative engagements

11.5. Additional information. [Optional]

In our engagement tracking system, we do not distinguish between engagements that are collaborative and those that are undertaken by our internal team.  This is because even collaborative engagements (or those that start out that way) will involve direct dialogue solely between the company and our internal team at some stage in the process.  


LEA 12. Engagement methods

12.1. Indicate which of the following your engagement involved.

12.2. Additional information. [Optional]

The approach taken will be influenced by general practice in a market (for example, ESG roadshows are more common in European markets than in the US), the purpose of the engagement and the response from the company (for example, we may follow up an engagement with management with a letter to the board if we believe management is not being deliberate about addressing our concerns).


LEA 13. Engagements on E, S and/or G issues (Not Applicable)


LEA 14. Companies changing practices / behaviour following engagement

14.1. Indicate whether you track the number of cases during the reporting year where a company changed its practices, or made a formal commitment to do so, following your organisation’s and/or your service provider's engagement activities.

14.3. Additional information [Optional].

We don’t track as an aggregate across our invested universe the commitments made by companies and thus can’t provide this number. We do track this within individual company records but not in a way that can be counted as requested. 


LEA 15. Examples of ESG engagements

15.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

Topic or ESG issue
          Governance and environmental
        
Conducted by
Objectives

To understand the board’s oversight of management on key strategic issues, including climate risk management and portfolio resilience

Scope and Process

BlackRock Investment Stewardship  sought to engage board directors but our request was declined by management on the basis of a non-engagement policy.  As a result we could not assess the board’s role in key strategic decisions and the merits of the board’s recommendation to shareholders to support management’s approach  

Outcomes

We voted against the directors we considered most accountable for director-shareholder engagement.  We continued to engage management and determine how best to escalate our concerns in future 

Topic or ESG issue
          Environmental and governance
        
Conducted by
Objectives

To understand the company’s response to a major environmental disaster in one of their joint-venture operations

Scope and Process

BlackRock Investment Stewardship engaged the chair of the board and senior executives to discuss the disaster, the ramifications for those directly impacted, the steps being taken to mitigate future risk and the consequences for management in terms of penalties.

Outcomes

The company reassured us it was responding appropriately and dedicating sufficient resources to clean-up, cooperating in the external investigation, and taking the necessary steps in terms of redress.

Topic or ESG issue
          Social and governance
        
Conducted by
Objectives

To understand the company’s response to human rights issues in its detention center business 

Scope and Process

BlackRock Investment Stewardship engaged senior management on the issues, the protections that were in place at the time the issues arose, and the steps subsequently taken to radically improve practices.

Outcomes

The new management team demonstrated considerable knowledge of the issues and how best to address them. We encouraged enhanced reporting around the response and the policies and training introduced to reduce the risk of poor practices recurring.

Topic or ESG issue
          Social and governance
        
Conducted by
Objectives

To understand how the board of a troubled financial institution was helping shape improvements in culture

Scope and Process

We engaged the chair of a European financial institution about the cultural issues that had seen the bank incur significant fines and harm to reputation.

Outcomes

The chair explained the concerted efforts that had been made by the board and management to reset the culture, in part through a significant overhaul of incentive pay practices.

Topic or ESG issue
          Governance and social
        
Conducted by
Objectives

To encourage a change in board composition and leadership at a company that has a long track record of poor employment practices, amongst other issues

Scope and Process

BlackRock Investment Stewardship engaged collaboratively with the company, which is controlled, to push for a change in board leadership given the current board had demonstrably failed to protect long-term shareholders’ interests.  This followed a series of frustrating individual engagements.

Outcomes

We attended the shareholder meeting and made our views known to board members. At the meeting, the overwhelming majority of unaffiliated shareholders voted to remove the chairman and backed the shareholder proposal. We ultimately voted against management on several proposals.

15.2. Additional information. [Optional]

The engagements above were across each of the key regions in which our team is based – the Americas; Europe, the Middle East and Africa; and Asia-Pacific.  We publish engagement and voting case studies to the BlackRock website each quarter that are more detailed than the space here allows. 


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