BlackRock Frontiers | ESG

Environmental, social and governance (ESG) issues can present both opportunities and risks to long-term investment performance. The securities within the Company’s investment remit may involve significant additional risk due to the political volatility and ESG concerns facing many of the countries in the Company’s investment universe. These ethical and sustainability issues are a key focus of the Board, and your Board is committed to a diligent oversight of the activities of the Manager in these areas. The Frontier Markets in which the Company can invest are home to almost 3 billion of the world’s poorest people.  We believe that the companies in which the portfolio is invested should operate within a healthy ecosystem of all their stakeholders whether these are shareholders, employees, customers, regulators or suppliers and that this may aid the sustainability of long-term returns. The Board believes effective engagement with management is, in most cases, the most effective way of driving meaningful positive change in the behaviour of investee company management. The Board believes that BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market.

Sustainability is BlackRock’s standard for investing, based on the investment conviction that integrating sustainability can help investors build more resilient portfolios and achieve better long-term, risk-adjusted returns. BlackRock believes that climate change is a defining factor in companies’ long-term prospects and that it will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade. More information in respect of the actions taken by BlackRock in 2020 on making sustainability the new standard for investing can be found at www.blackrock.com/corporate/literature/publication/our-2020-sustainability-actions.pdf

Environmental, Social and Governance (ESG) investing is often used interchangeably with the term “sustainable investing.” BlackRock has identified sustainable investing as being the overall framework and ESG as a data toolkit for identifying and informing our solutions. BlackRock has defined ESG Integration as the practice of incorporating material ESG information and consideration of sustainability risks into investment decisions in order to enhance risk-adjusted returns. BlackRock recognises the relevance of material ESG information across all asset classes and styles of portfolio management.  ESG information and sustainability risks are included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes. The Investment Manager considers ESG insights and data, including sustainability risks, within the total set of information in its research process and makes a determination as to the materiality of such information in its investment process. ESG insights are not the sole consideration when making investment decisions and the extent to which ESG insights are considered during investment decision making will also be determined by the characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time in light of emerging sustainability risks or changing market conditions. This approach is consistent with the Investment Manager’s regulatory duty to manage the Company in accordance with its investment objective and policy and in the best interests of the Company’s investors. The Investment Manager’s Risk and Quantitative Analysis group will review portfolios to ensure that sustainability risks are considered regularly alongside traditional financial risks, that investment decisions are taken in light of relevant sustainability risks and that decisions exposing portfolios to sustainability risks are deliberate, and the risks diversified and scaled according to the investment objectives of the Company.

BlackRock’s approach to ESG integration is to broaden the total amount of information the Investment Manager considers with the aim of improving investment analysis and understanding the likely impact of sustainability risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG data and insights, to make investment decisions appropriate for the Company objectives. This can include relevant third-party insights or data, internal research or engagement commentary and input from BlackRock Investment Stewardship.  Sustainability risks are identified at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the Company’s risk and return objectives. Assessment of these risks is done relative to their materiality (i.e. likeliness of impacting returns of the investment) and in tandem with other risk assessments (e.g. liquidity, valuation, etc.).

ESG integration does not change the Company’s investment objective or constrain the Investment Manager’s investable universe and does not mean that an ESG investment strategy or exclusionary screens has been or will be adopted by the Company. Similarly, ESG integration does not determine the extent to which the Company may be impacted by sustainability risks.

BlackRock Investment Stewardship (BIS) plays a key role in our fiduciary approach. As an essential component of BlackRock’s responsibility to clients is engagement with companies to advocate for the sound corporate governance and business practices that drive the sustainable, long-term financial returns that enable clients to meet their investing goals. BIS looks to boards and executive management to serve the interests of long-term shareholders and other stakeholders. BIS’ active and ongoing dialogue with the leaders of these companies provides a valuable perspective on their long-term strategies, financial performance, and the business challenges they face.  Read more about BlackRock’s Investment Stewardship work here https://www.blackrock.com/corporate/about-us/investment-stewardship#ourresponsibility

The Board receive periodic updates from the Manager in respect of activity undertaken for the year under review. Over the year to 30 September 2020, 8 total company engagements were held with the management teams of 7 portfolio companies, representing 12.9% of the portfolio at 30 September 2020. To put this into context, there were 62 companies in BlackRock Frontiers Investment Trust plc’s portfolio at 30 September 2020 (30 Setember 2019: 61).  In total 637 proposals were voted on at 60 shareholder meetings.