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  • Writer's pictureDaniel Goelzer

BlackRock and State Street Tell CEOs and Boards What They Expect from Them in 2022

The CEOs of two major asset managers have issued public letters outlining their expectations for portfolio company managements and boards during the coming year. The letters are likely to have a significant influence on public companies and their boards, particularly because of the ability of these two large institutions to use their voting power to enforce compliance with their views.


Each year, Laurence Fink, Chairman and CEO of BlackRock, the world’s largest asset manager, sends an open letter to corporate CEOs. In his 2020 letter, Mr. Fink asserted that “[c]limate change has become a defining factor in companies' long-term prospects” and called on the companies that Blackrock invests in on behalf of clients to make disclosures in accordance the Sustainability Accounting Standards Board (SASB) standards for their industry and the recommendations of the Task Force on Climate-Related Disclosures (TCFD). See BlackRock’s CEO Calls for Portfolio Companies to Make SASB and TCFD Disclosures, January 2020 Update. In 2021, Mr. Fink asked that companies “disclose a plan for how their business model will be compatible with a net-zero economy” by 2050.” See BlackRock Calls for Disclosure and Board Oversight of Company Plans for the Net-Zero Economy, January-February 2021 Update.

In his 2022 letter, Mr. Fink takes a somewhat different tack. While he reiterates the importance of addressing climate change, he also explains his view of stakeholder capitalism and how it is consistent with shareholder value creation. Among the points he makes:

  • Capitalism, not politics. “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism. * * * We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing.” (emphasis in original)

  • The purpose-driven company. “Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success. Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it. * * * If you stay true to your company's purpose and focus on the long term, while adapting to this new world around us, you will deliver durable returns for shareholders and help realize the power of capitalism for all. ”

  • Human capital. “Workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees – actions that will help them achieve greater profits for their shareholders. Companies that deliver are reaping the rewards. Our research shows that companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic.”

  • De-carbonization. “Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead. * * * [W]e are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders. It’s also why we ask you to issue reports consistent with the Task Force on Climate-related Financial Disclosures (TCFD): because we believe these are essential tools for understanding a company’s ability to adapt for the future.”

State Street Global Advisors

Cyrus Taraporevala, President and CEO of State Street Global Advisors (SSGA), focuses on climate change and diversity in his annual letter to public company board members. He makes clear that SSGA intends to use its voting power against directors that do not conform to SSGA’s views.

As to climate change, he states that “for the year ahead, our focus will be to drive both broad climate action in the market across sectors as well as more targeted action for companies with the most significant emissions.” Accordingly:

  • “We expect companies in major indices in the US, Canada, UK, Europe, and Australia to align with climate-related disclosures requested by TCFD, including whether the company discloses: (1) board oversight of climate-related risks and opportunities; (2) total direct and indirect GHG emissions (Scope 1 and Scope 2 emissions); and (3) targets for reducing GHG emissions. * * * [W]e will start [during the 2022 proxy season] taking voting action against directors across applicable indices should companies not meet these disclosure expectations.” (footnote omitted)

  • “In the coming year, we will launch a targeted engagement campaign with the most significant emitters in our portfolio to encourage disclosure aligned with our expectations for climate transition plans, which covers 10 areas including decarbonization strategy, capital allocation, climate governance, and climate policy. In 2023, we will hold companies and directors accountable for failing to meet these expectations.”

As to board and workforce diversity, SSGA is “prepared to vote against the Chair of the board’s Nominating Committee or the board leader should a company fail to meet” the following expectations:

  • “Beginning in the 2022 proxy season, we will expect all our holdings, across the globe, to have at least one woman on their boards. To-date, this policy has only applied to major indices in select markets around the world.”

  • “Additionally, beginning in the 2023 proxy season, we will expect boards to be comprised of at least 30% women directors for companies in major indices in the US, Canada, UK, Europe, and Australia. We expect this change to result in boards with 3 or 4 female directors on average and as many as 3,000-to-4,000 additional female directors across covered indices.”

Further, as announced in Mr. Taraporevala’s 2021 letter, SSGA will also vote against the “responsible directors” if (1) companies in the S&P 500 and FTSE 100 do not have a person of color on their board, (2) companies in the S&P 500 and FTSE 100 do not disclose the racial and ethnic diversity of their boards, and (3) companies in the S&P 500 do not disclose their EEO-1 reports.

Comment: BlackRock has nearly $7 trillion in assets under management, and Mr. Fink’s annual letter attracts considerable attention because of BlackRock’s leverage as a significant shareholder in many public companies. Mr. Fink’s views on the relationship between stakeholder capitalism, company purpose, and shareholder value creation are provocative and thought-provoking. Of more practical significance, however, are his expectations that companies in which BlackRock holds shares establish explicit targets for greenhouse gas reductions, develop plans to meet those targets, and make public disclosures consistent with the recommendations of the TCFD. Similarly, SSGA’s Mr. Taraporevala is very direct in committing to vote against directors of companies that do not comply with his very specific demands, including TCFD and detailed diversity disclosures.

For audit committees, these letters are yet another reminder of the importance of reviewing their company's ESG disclosures and discussing with management bringing the company’s reporting into conformity with TCFD and SASB. They should also consider management’s plans to implement procedures and controls to ensure the accuracy of these types of disclosures.

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