Keep knowledgeable with free updates
Merely signal as much as the ESG investing myFT Digest — delivered on to your inbox.
BlackRock has cancelled conferences with firms in the midst of shareholder battles as a result of it fears that it might violate steering on investor activism that the US Securities and Trade Fee issued final week.
BlackRock and different asset managers usually discuss with firms about voting forward of activism campaigns and in addition about routine proxy poll points at annual shareholder conferences.
However that observe has been known as into query by the SEC’s steering, which has been extensively interpreted as an assault on utilizing environmental, social and governance (ESG) elements in investing. The change imposes extra onerous regulatory necessities on fund managers that could be searching for to affect company behaviour.
“This steering exploded like a grenade in the midst of pending proxy fights final week,” mentioned Kai Liekefett, a associate at Sidley who’s representing firms in activist fights that can vote imminently.
BlackRock, the world’s largest asset supervisor, quickly paused “stewardship” conferences to evaluate what the SEC rule change meant, one particular person aware of the matter mentioned.
The SEC move is an element of a bigger regulatory effort by state and federal officers to rein within the energy of the biggest fund managers, which frequently maintain as a lot as 10 per cent of most US firms due to the sheer dimension of their index-tracking funds.
Till February 11, the SEC mentioned fund managers that owned greater than 5 per cent of an organization weren’t deemed to be “influencing” company behaviour after they prodded companies on points starting from government compensation to environmental insurance policies. As such, they had been allowed to file a comparatively brief type about their holdings, referred to as a 13-G, which is just for “passive buyers.”
Underneath the brand new guidelines, the standards that may set off a extra onerous 13-D submitting has broadened. Historically, 13-D filings have been largely reserved for activist buyers akin to hedge funds or funding managers seeking to affect management.
The steering complicates the widespread observe amongst massive fund managers of urgent firms to reveal local weather dangers, diversify their boards and take different steps that they are saying are within the curiosity of long-term shareholders.
Whereas a few of these points are intently tied to the US’s tradition wars, the foundations additionally undermine efforts to eradicate firms’ poison tablet plans and different routine company governance issues which have little to do with environmental and social points.
The 13-D type requires detailed explanations of why and the way an investor acquired its stake and its function for investing. Activist buyers additionally face tighter deadlines to file updates on share purchases or gross sales with the SEC.
Whereas “that is an anti-ESG change”, mentioned a lawyer who advises massive managers, its knock-on results would span the funding trade. “The sensible impact of this may make it tougher to interact on ESG subjects, and it’s going to place extra stress on managers when they give thought to how they each immediately and informally interact.”
BlackRock, which has greater than $11tn of belongings underneath administration, has come underneath intense stress from conservative US lawmakers over its affect on company America, given its important holdings in almost each massive listed US firm.
The SEC change got here amid a flurry of actions by the company to maneuver away from the Biden administration’s insurance policies. They had been adopted whereas Paul Atkins, President Donald Trump’s nominee for SEC chair, waits for Senate affirmation.
BlackRock and the SEC declined to remark. It was not instantly clear whether or not BlackRock’s greatest rivals, Vanguard and State Avenue, additionally cancelled conferences.
Stefania Palma contributed reporting from Washington
Local weather Capital
The place local weather change meets enterprise, markets and politics. Explore the FT’s coverage here.
Are you interested in the FT’s environmental sustainability commitments? Find out more about our science-based targets here
