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Jul 21, 2023

The week in IR: BlackRock offers vote to retail investors in biggest ETF, Blackstone predicts end of deal drought and ESG under fire

Our pick of stories from around the web that you might have missed this week

– BlackRock is giving retail investors in its biggest ETF the chance to participate in proxy voting in 2024, according to the Financial Times (paywall), as the $9.4 tn asset manager moves to rebut Republican claims that it pursues a ‘woke agenda’. The world’s biggest money manager has joined fellow index fund providers State Street and Vanguard in experimenting with ways to involve ordinary investors in voting on shareholder proposals at a time when their collective influence on US companies has come under fire from both left and right.

Investors in BlackRock’s iShares Core S&P 500 ETF will be asked to choose among seven different general policies ranging from voting generally with management to prioritizing Catholic values or ESG factors. Investors can also tell BlackRock to continue voting their shares. Customers will not be able to cast specific votes on individual companies.

– The president of Blackstone, the world’s largest alternative asset manager, predicted that the pain of inflation has peaked and a year-long deal drought might soon come to an end, the FT also reported. Jonathan Gray said he was confident that markets had absorbed the ‘shock’ of higher interest rates, signaling a possible return of deal activity now that US inflation has fallen sharply in recent months. ‘Markets will normalize and transaction activity will pick back up,’ he told the FT. ‘It’s possible with the economy slowing you could have another pullback in markets, but we have made it through the inflation shock and most of the way through the interest rate shock. I feel better about the way markets look today than [I] did 12 months ago.’

– After a year of setbacks, ESG investing is under fire, with a new report by the Republican ESG Working Group highlighting how ESG has been letting investors down with unclear goals, politicized portfolios and disappointing returns, according to the conservative National Review. This backlash has even the most ardent pro-ESG voices softening, the magazine said. Late last month, BlackRock CEO Larry Fink walked back his use of the term ‘ESG’, saying he was ‘ashamed’ for being part of the political discussion. He’s right to feel that way: these ideologically tinged investment products left consumers shortchanged, the National Review opined.

‘Sustainable’ portfolios reflect 13 percent of America’s managed investments, and with 75 percent of adults investing for retirement in some fashion, ESG may compromise the savings of a large swath of them, the magazine continued. These comments from the head of the largest US asset manager should be welcomed as a sign the attention now finally being paid to ESG by those outside the ESG ecosystem is proving embarrassing and, perhaps, bad for business. Despite years of industry leaders telling us ESG is the future, it may be that the movement’s moment has passed its peak, the National Review claimed.

Thomson Reuters reported that the fear of receiving an adverse ESG rating has not been a significant consideration for most companies when setting their strategy and planned actions to address ESG issues, according to research published by the UK’s Financial Reporting Council. The research also found that most investors primarily used ESG ratings agencies as a source of data rather than relying on the rating itself to inform voting decisions. While audit committee chairs had a keen interest and understanding of ESG activities within their company, their involvement in decision-making processes was often limited. Their primary role was concerned with risk management, compliance and ensuring effective reporting.

– The SEC could use more funding to hire additional personnel and upgrade its technology capabilities, but it will continue to effectively oversee and enforce the nation’s securities laws if Congress does not approve the agency’s full fiscal year 2024 budget request, chair Gary Gensler said at a congressional hearing on Wednesday, reported Pensions & Investments. President Joe Biden in his fiscal year 2024 budget request called for $2.4 bn to fund SEC operations, a figure Gensler endorsed. That amount, up from the current $2.1 bn funding total, would allow the SEC to hire an additional 170 full-time employees and better oversee markets and protect investors, Gensler said during testimony before the House Appropriations Subcommittee on Financial Services and General Government.

Bloomberg (paywall) reported that capital markets intelligence firm Brendan Wood International (BWI) released second quarter results from its proprietary Shareholder Confidence World Watch program. This ongoing intelligence program evaluates shareholder confidence in approximately 550 of the world’s largest companies, accounting for about 75 percent of world stock trading. According to BWI, Walmart was ranked first in the global top 10 companies by shareholder confidence votes. Banco Itaú was in first place in the top 10 companies ranked by corporate governance. Brendan Wood, chair of BWI, said the responsibility of corporations to shareholders has been getting increasing attention in the form of corporate governance ratings.

‘Surprisingly, these scores are based on publicly available data without any value attributed to the opinions of the most important constituent: institutional shareholders,’ he noted. ‘Restoring investor confidence can be accomplished only through a credible audit of a company’s interaction with the capital markets community. Only when boards pay attention to these audits and alter their governance practices accordingly will companies and shareholders move in tandem for the benefit of all.’

Staff Writers

The staff writers on IR magazine are from our team of highly experienced journalists.