ESG Policy

Policy as at:
02/02/2024

The Board's approach to ESG

The Board believes that responsible investment and sustainability are integral to the longer-term delivery of the Company’s success. The Board works closely with the Investment Manager regularly to review the Company’s performance, investment strategy and underlying policies to ensure that the Company’s investment objective continues to be met in an effective, responsible and sustainable way in the interests of shareholders and future investors. The Board has been mindful of the increase in demand for investment products that place a sustainable investment philosophy at their core, a trend that has accelerated in recent years. Accordingly, the Company’s investment objective and investment policy incorporates a sustainable investment approach into the investment policy so that the Company is managed in a way which is compatible with the principles of sustainable investment adopted by the Company. The Company promotes environmental or social characteristics under the EU Sustainable Finance Disclosure Regulation (SFDR) and is classified as an Article 8 product due to registration and marketing of the Company's shares in Ireland. Further detail around how the Company has achieved these characteristics and objectives, is included in the sustainability-related disclosures supplementary section on page 132 of the Annual Report.

 

Investment approach

The Investment Manager, in addition to other investment criteria, takes into account the environmental, social and governance (ESG) characteristics of the portfolio and prospective investments and seeks to deliver a superior ESG outcome versus the reference index (the Russell 1000 Value Index) as measured by a leading external ratings agency, by aiming for the Company’s portfolio to achieve: (i) a better ESG score than the reference index; and (ii) a lower carbon emissions intensity score than the Reference Index.

The Investment Manager applies a screening policy (the BlackRock EMEA baseline screens policy) at the time of investment through which it seeks to limit and/or exclude direct investment (as applicable) in companies which, in the opinion of the Investment Manager, have exposure to, or ties with, certain sectors (in some cases subject to specific revenue thresholds) including but not limited to:

  1. the production of certain types of controversial weapons:
  2. the distribution or production of firearms or small arms ammunition intended for retail civilians:
  3. the extraction of certain types of fossil fuel and/or the generation of power from them:
  4. the production of tobacco products or certain activities in relation to tobacco-related products; and
  5. issuers which have been deemed to have failed to comply with United Nations Global Compact Principles.

Following application of the screening policy, those companies which have not yet been excluded from investment will then be evaluated by the Investment Manager based on their ability to manage the risks and opportunities associated with ESG-consistent business practices and their ESG risk and opportunity credentials, such as their leadership and governance framework, which is considered essential for sustainable growth, their ability to strategically manage longer-term issues surrounding ESG and the potential impact this may have on a company's financials. To undertake the required analyses, the Investment Manager may use data provided by external ESG data providers, proprietary models and local intelligence and may undertake site visits.

BlackRock's approach to ESG integration

BlackRock believes that sustainability risks, including climate risk, are investment risks. As a fiduciary, we manage material risks and opportunities that could impact portfolios. Sustainability can be a driver of investment risks and opportunities, and we incorporate them in our firm wide processes when they are material. This in turn (in BlackRock’s view), is likely to drive a significant reallocation of capital away from traditional carbon-intensive industries over the next decade. BlackRock believes that carbon-intensive companies will play an integral role in unlocking the full potential of the energy transition, and to do this, they must be prepared to adapt, innovate and pivot their strategies towards a low carbon economy.

As part of BlackRock’s structured investment process, material ESG risks and opportunities (including sustainability/climate risk) are considered within the portfolio management team’s fundamental analysis of companies and industries and the Company’s portfolio managers work closely with the BIS team to assess the governance quality of companies and understand any potential issues, risks or opportunities.

As part of their approach to ESG integration, the portfolio managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio. In particular, portfolio managers at BlackRock now have access to 1,200 key ESG performance indicators in Aladdin (BlackRock’s proprietary trading system) from third-party data providers. BlackRock’s internal sustainability research framework scoring is also available alongside third-party ESG scores in core portfolio management tools. BlackRock’s analysts’ sector expertise and local market knowledge allows it to engage with companies through direct interaction with management teams and conducting site visits. BIS engages with company leadership to understand how they are identifying and managing material business risks and opportunities, including sustainability related risks and the potential impacts these may have on long-term financial performance. BIS and the portfolio management team’s understanding of material sustainability related risks and opportunities is further supported by BlackRock’s Sustainable and Transition Solutions (STS) function. STS looks to advance ESG research and integration, active engagement and the development of sustainable investment solutions across the firm.

 

Investment Stewardship

Consistent with BlackRock’s fiduciary duty as an asset manager, BIS seeks to support investee companies in their efforts to deliver long-term financial value on behalf of their clients. These clients include public and private pension plans, governments, insurance companies, endowments, universities, charities and, ultimately, individual investors, among others. BIS serves as a link between BlackRock’s clients and the companies they invest in. Clients depend on BlackRock to help them meet their investment goals; the business and governance decisions that companies make may have a direct impact on BlackRock’s clients’ long-term investment outcomes and financial wellbeing.

From BlackRock’s perspective, business relevant sustainability issues can contribute to a company’s long-term financial performance, and thus further incorporating these considerations into the investment research, portfolio construction, and stewardship process can enhance long-term risk adjusted returns. The Company’s Investment Manager works closely with BIS to assess the governance quality of companies and business practices, and better understand any potential issues, risks or opportunities. The Investment Manager uses this information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.

 

Global Principles

The BIS Global Principles, regional voting guidelines, and engagement priorities (collectively, the ‘BIS policies’) set out the core elements of corporate governance that guide BIS’ investment stewardship efforts globally and within each regional market, including when engaging with companies and voting at shareholder meetings when authorised to do so on behalf of clients. Each year, BIS reviews its policies and updates them as necessary to reflect changes in market standards and regulations, insights gained over the year through third-party and its own research, and feedback from clients and companies.

BlackRock's regional proxy voting guidelines

BIS’ regional voting guidelines are intended to help clients and companies understand its thinking on key governance matters. They are the benchmark against which it assesses a company’s approach to corporate governance and the items on the agenda to be voted on at the shareholder meeting. BIS applies its guidelines pragmatically, taking into account a company’s unique circumstances where relevant. BlackRock informs voting decisions through research and engages as necessary. BIS reviews its voting guidelines annually and updates them as necessary to reflect changes in market standards, evolving governance practice and insights gained from engagement over the prior year.

BlackRock is committed to transparency in terms of disclosure of its stewardship activities on behalf of clients. The BIS policies help BlackRock’s clients understand its work to advance their interests as long-term investors in public companies. Additionally, BIS publishes both annual and quarterly reports detailing its stewardship activities, as well as vote bulletins that describe its rationale for certain votes at high profile shareholder meetings.

BlackRock's reporting and disclosures

In terms of its own reporting, BlackRock believes that the Sustainability Accounting Standards Board provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the Task Force on Climate-related Financial Disclosures (TCFD) provides a valuable framework. BlackRock recognises that reporting to these standards requires significant time, analysis and effort.

.