In December 2022, BlackRock released its 2023 U.S. proxy voting guidelines that outline its 2023 stewardship expectations. Key changes to its U.S. proxy voting guidelines are discussed below.

Climate Risk

BlackRock has revised some of its expectations with respect to company and board management and oversight of climate risk. BlackRock has removed specific reference to global net zero GHG emissions by 2050 and emphasizes that each company is left to define its own strategy. BlackRock replaces some prior references to net zero to now align with decarbonization efforts specified per the Paris Agreement. BlackRock further recognizes the need for some companies to maintain traditional energy sources to enable an orderly and equitable transition of business, while acknowledging the impacts of divestiture related to carbon-intensive assets in such instances, may be unlikely to contribute to global emissions reduction targets.

ESG Disclosure Expectations

The 2023 update follows a similar trend to last year, when BlackRock broadened its expectations for disclosure, noting its support of investor-relevant, industry-specific, material metrics and rigorous targets, aligned with SASB (ISSB) or comparable sustainability reporting standards. This year BlackRock has renamed their section of the guidelines previously entitled “Environmental and social issues” to now be “Material sustainability-related risks and opportunities”. An update to the “Board Oversight” section now includes specific reference to director and key committee responsibilities corresponding with material risk factors, including relevant sustainability considerations. BlackRock also revised a prior reference to opposing the election of directors based on a company’s TCFD disclosures related to Scope 1 and 2 emission standards, by adding in a new reference to account for the challenges companies are facing when attempting to disclose Scope 3 emissions on a best-efforts basis.

BlackRock has expanded their expectations for board-related diversity disclosure to include consideration of demographic factors and professional characteristics which are linked to a company’s long-term strategy and business model. BlackRock recommends disclosure of the process for which candidates are identified, including the use of professional firms and other resources to ensure a diverse slate of nominees are being considered for all available board nominations. BlackRock also recommends self-identified board demographic information be disclosed in aggregate with alignment to local laws.

New for 2023, BlackRock has created a new section within their guidelines entitled “Natural capital”. This section emphasizes BlackRock’s expectation for companies to provide disclosure on material risks related to such resources and their businesses, in alignment with TCFD standards, based on the absence of a separately established best practice framework at this time.

Board Composition and Effectiveness

BlackRock has updated its policies related to board composition and effectiveness. The update includes replacing a prior reference to a 30% diversity standard with a specific reference of “meaningful diversity” in accordance with local regulatory requirements and best practices. This change likely has been made to account for instances when a company has exhibited sufficient progress to date, however, may require additional time to fulfill its overall expectations of building a strong and diverse board. In addition to continuing its previous policy of encouraging U.S. boards to have at least 30% diversity of membership, two female directors, and at least one director who identifies as a member of an underrepresented group, BlackRock’s 2023 guidelines adds to its discussion of the perceived benefits of board diversity, in particular stating, “A strong board provides a competitive advantage to a company, providing valuable oversight and contributing to the most important management decisions that support long-term financial performance.” BlackRock further states, “Increasingly, we see leading boards adding members whose experience deepens the board’s understanding of the company’s customers, employees, and communities.”

New for 2023, BlackRock has added a table which outlines the expectations of each respective role for companies that operate with a combined CEO/Non-Independent Chair (or separate Non-Independent Chair) with a Lead Independent Director, and for companies that operate with a separate Independent Chair. Expectations for CEO and management succession planning have been enhanced to specifically include where accountability lies within the boardroom for this task. Further, it is expected that robust disclosure should include the timeline and responsibilities for instances where a departing CEO may maintain a role within the boardroom, with an emphasis for appropriate independent leadership structures to be in place. BlackRock also added further details regarding their preference for enhanced disclosure pertaining to board evaluation processes. Specifically, BlackRock encourages boards to include objectives of the evaluation and details to the extent external parties are being utilized, including frequency and affirmation of being conducted on an individual director basis.

Executive Compensation

BlackRock has made some revisions to its guidelines regarding executive compensation in 2023. BlackRock has removed their specific reference to supporting ESG-related performance criteria, resulting in a broader reference to “Support incentive plans that foster the sustainable achievement of results – both financial and non-financial – consistent with the company’s strategic initiatives.”

BlackRock has added further details regarding their preferences for companies to ensure that appropriate long-term vesting and holdings periods are applied when issuing front loaded awards. Additional clarity has been added around their considerations when evaluating performance, including examination of the executive teams’ efforts and contributions, alongside realized pay outcomes and other exogenous factors. Blackrock further acknowledges instances when specialty awards may be considered appropriate and provides factors related to their evaluation, including the magnitude and structure of the award, scope of recipients, alignment of grant with shareholder value, a company’s historical use of such awards, and other circumstances which may be specific to a company.

Shareholder Proposals, Contested Director Elections, and Special Situations

BlackRock has revised their language pertaining to corporate political activities to emphasize their expectation for companies to provide clear and accessible disclosure, enabling investors to understand and reference a company’s political activities and their alignment with long-term strategy and stated public policy priorities.

BlackRock has revised their language pertaining to key stakeholder interests, accounting for instances when they may vote in opposition of a director or consider supporting or opposing shareholder proposals if a material risk is presented and is not deemed to be sufficiently addressed — or is determined to be within the purview of certain stakeholders and outside the domain of the company.

BlackRock has revised their language pertaining to contested director elections and special situations, providing additional insight when evaluating circumstances where a limitation on shareholder rights may be considered egregious and result in opposing the election of the entire board. Further, BlackRock will consider a variety of possible voting outcomes in contested situations, including the ability to support a mix of management and shareholder nominees, a change that may likely influence their approach to conducting case-by-case analysis for such situations in response to the recent update regarding universal proxy card regulations.

If you have questions or comments, please email or call 212 440 9800.

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