BlackRock American Income | ESG

In managing the Company's portfolio, the Investment Manager, in addition to other investment criteria, takes into account the environmental, social and governance (ESG) characteristics of the relevant issuers of securities and seeks to deliver a superior ESG outcome versus the Reference Index 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 "Reference Index" is the Russell 1000 Value Index or such other index as may be agreed by the Company and the Investment Manager to be appropriate from time to time. However, there can be no guarantee that these aims will be achieved and the ESG rating of the Company's portfolio and its carbon emission intensity score may vary.

The Company will apply the BlackRock EMEA Baseline Screens, as follows:

The Investment Manager will limit and/or exclude (as applicable) direct investment in corporate issuers which, at the time of purchase, in the opinion of the Investment Manager, have exposure to, or ties with, the following sectors:

• the production of certain types of controversial weapons or nuclear weapons;
• the production or, subject to specific revenue thresholds, distribution of firearms or small arms ammunition intended for retail to civilians;
• subject to specific revenue thresholds, the extraction of certain types of fossil fuel and/or the generation of power from them;
• the production of tobacco products or, subject to specific revenue thresholds, certain activities in relation to tobacco-related products; and
• issuers which have been deemed to have failed to comply with United Nations Global Compact Principles.

Should existing holdings, compliant with the above limits and/or exclusions at the time of investment subsequently become ineligible, they will be divested within a reasonable period of time.

The BlackRock EMEA Baseline Screens described above are only applied by the Investment

Manager to direct investments made by the Company in corporate issuers and accordingly the Company may have exposure to other investments (including, but not limited to, derivatives, money market instruments, units or shares in collective investment schemes, cash and assets that can be turned into cash quickly) which are inconsistent with the BlackRock EMEA Baseline Screens and other exclusionary screens.

Following application of the screening policy outlined above, those companies which have not yet been excluded from investment are then 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 has defined ESG Integration as the practice of incorporating material environmental, social and governance (ESG) information 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. The Investment Manager may incorporate ESG considerations in its investment processes across all investment platforms. ESG information is included as a consideration in investment research, portfolio construction, portfolio review, and investment stewardship processes.

The Investment Manager considers ESG insights and data 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 factors 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 ESG characteristics or objectives of the Company. The Investment Manager’s evaluation of ESG data may be subjective and could change over time. 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, in partnership with the portfolio managers, to ensure that exposures to ESG risk are considered regularly alongside traditional financial risks.

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 ESG risks on the Company’s investments. The Investment Manager assesses a variety of economic and financial indicators, which may include ESG considerations, 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 the BlackRock Investment Stewardship team.

BlackRock seeks to advance the financial interests of investors through its investment stewardship efforts, consistent with the investment strategy in which they are invested. It does this by engaging with public companies, proxy voting on the Company’s behalf, contributing to industry dialogue on stewardship, and reporting on its stewardship activities.

BlackRock’s stewardship approach is comprised of the following core elements (as further described below):

• global principles;
• engagement; and
• proxy voting.

A key focus of the stewardship program is the promotion of sound corporate governance practices and financial resilience. While accepted standards and norms of corporate governance can differ between markets, there are certain globally applicable fundamental principles of corporate governance that, in BlackRock’s experience, contribute to a company’s ability to create long-term financial value for shareholders. Some of the focus areas in these global principles include boards and directors (including their effectiveness and composition), shareholder proposals (in particular, their implications for financial value) and material sustainability-related risks and opportunities. 

Engagement is core to BlackRock’s stewardship efforts as it provides the opportunity to better understand a company’s business model and material risks and opportunities. When assessing material risks and opportunities, BlackRock focuses on the factors that could impact a company’s long-term financial performance, which are unique to its business model and/or operating environment.

Engagement may also inform BlackRock’s voting decisions, particularly on issues where company disclosures are not sufficiently clear or complete, or management’s approach seems misaligned with the financial interests of investors.

BlackRock’s engagement priorities reflect the themes on which it most frequently engages companies, where they are relevant and a source of material business risk or opportunity. These themes focus on:

• Board quality and effectiveness: consideration of board performance, which is critical to the long-term financial success of a company and the protection of shareholders’ economic interests.
• Strategy, purpose, and financial resilience: understanding how boards and management align their business decision-making with the company’s purpose and adjust strategy as necessary.
• Incentives aligned with financial value creation: evaluation of companies’ disclosures on the connection between compensation policies and outcomes and the financial interests of shareholders.
• Climate and natural capital: understanding companies’ approach to, and oversight of, material climate-related risks and opportunities as well as how they manage material natural-related risks and opportunities, in the context of their business model and sector.
• Company impacts on people: understanding companies’ approach to human capital management and their management of the human rights issues that are material to their businesses.

BlackRock uses proxy voting to communicate its support for, or concerns about, how companies are serving the long-term financial interests of investors. BlackRock’s regional voting guidelines set out guidance on its position on common voting matters. These guidelines are not prescriptive as BlackRock takes into consideration the context in which companies are operating their businesses.

The Company has adopted additional climate and decarbonization stewardship guidelines (the Guidelines).

The Guidelines are focused on matters related to climate risks and the transition to a low-carbon economy at companies that are held by the Company. In respect of these matters, BlackRock will apply the Guidelines, and for all other matters, BlackRock’s core stewardship approach (described above) will continue to apply. The Guidelines differ from the core stewardship approach in that they consider, in addition to financial considerations and consistent with the investment objective of the Company, the alignment of companies’ business models and strategies with the financial opportunities presented by the transition to a low carbon economy and the more ambitious goal of the Paris Agreement1, namely, to limit average temperature rise to 1.5°C above pre-industrial levels.

The Guidelines will apply to companies which produce goods and services that contribute to real world decarbonization or have a carbon intensive business model and face outsized impacts from the low carbon transition, based on reported and estimated Scope 1, 2, and 3 GHG emissions. Where the Guidelines apply, BlackRock looks for these companies to provide sufficient corporate disclosure to allow it to determine the extent to which decarbonization and the low-carbon transition are strategic priorities.

In implementing the Guidelines, BlackRock will generally support non-executive directors standing for election where, in BlackRock’s assessment based on company disclosures and engagement, a company is executing on its commitment to align with the transition to a low-carbon economy, as defined above. Where BlackRock determines this is not the case, it may vote against the election of one or more non-executive directors who have responsibility for the issue.

Shareholder proposals on a company’s approach to the low-carbon transition or climate risk will be considered on their merit. The BlackRock Group’s assessment will take into consideration the implications for, and the relevance to, the company’s stated low-carbon transition strategy and targets.

1The Paris Agreement to the United Nations Framework Convention on Climate Change, December 12, 2015