BlackRock, BlackRock, and more BlackRock
Week Ending 17 January

Well, we're two weeks deep into 2020 and already have possibly the most consequential story of the year out on the transom. Let's skip our usual intro and get  caught up with it (and a few other things going on in the IR world)...

ESG
 - First, a thank you from the Autocorrect design team to Larry Fink, for forcing us to re-order this week's sections. There might be a few of you enjoying "off the grid" vacations for the last four days that missed the annual BlackRock letter to CEOs, so first off, here's the link. (We'll make a general observation to start with - compared with prior BlackRock letters that covered social purposes, we've seen very little op-ed coverage of the statement - CNBC and Quartz carry two of only a scant few opinion takes we've seen).

While the release is chock full of substance, here's a few items we saw that may need some context. First, BlackRock's explicit support for climate disclosures matching SASB and TCFD formats is the most significant move; an IR Magazine interview with SASB from December suggested that 120 companies to date are reporting in SASB format - meaning BlackRock's goal of seeing all of its portfolio companies disclose in SASB or another material format by the end of 2020 is not a light lift for its portfolio universe. 

Second, from its letter to clients, the firm plans to double the number of ESG ETFs it offers, and work with index providers to make sure it can offer sustainable versions of all of its largest index portfolios, and then speaks about how it will "work with them to promote greater standardization and transparency of sustainability benchmark methodology. We believe that ESG benchmarks should exclude businesses with high ESG risk such as thermal coal and we are engaging with index providers on this topic." We rarely see public statements from index clients pushing their providers to make changes to selection characteristics - after all, asset managers could simply choose an alternative index or commission a custom index; read as a whole, this is a statement intended to have a broader impact than just the indices BlackRock uses today.

Third, BlackRock will change its engagement policy and specifically align engagement goals with the UN Sustainable Development Goals, and will move to quarterly voting disclosure, as well as disclosing "key high-profile votes" as they happen; further, following with SSGA's engagement summary last year, BlackRock will begin publicly disclosing the topics that it engages with each company on annually. Yes, there's a lot here to react to - if you haven't filled your management team in on the details yet, now's the time.

The Autocorrect Poll
- What is IR's role in the communications process around ESG? That's a tough question to answer - but in light of the BlackRock statement above, the answer to it might be different today than previously, especially if you're in the CFO's office talking about setting your budget to meet investor needs. Previously, NIRI's policy statement from January 2019 suggested that IR should be aware of all communications from the company on the ESG front, but doesn't necessarily prescribe that all ESG communications should be "owned" by the IR team. Further, while shareholders aren't the only stakeholders the company faces, large shareholders like BlackRock that are now becoming more prescriptive about what a company says and does probably necessitates a larger role for IR.

Let's see how each of your organizations handle the communications portion of ESG from inside the IR suite - and maybe give you some additional ammunition to help you in that CFO conversation above, with an anonymous Autocorrect Poll:

With respect to producing an annual sustainability report or other CSR disclosures (in any form), my IR department is:

A) Not involved in selecting the topics for disclosure, and not involved in writing the copy 

B) Not involved in selecting the topics for disclosure, and involved in writing the copy 
C) Involved in selecting the topics for disclosure, and not involved in writing the copy
D) Involved in selecting the topics for disclosure, and involved in writing the copy


Please choose the best answer - as usual, we'll publish the completed results in next week's Autocorrect.

Buy-Side
-Morningstar released its 2019 fund flow summary covering the global mutual fund community (in 9 handy charts, at that). A couple notable highlights:

Passive funds beat active funds, again. This is nothing new—passive has won this battle handily for 5 consecutive years. This year saw $167B flow into passive funds while $204.1B left their active counterparts. To make matters worse, the outflows for active funds were the worst since 2016. The passive vs. active split may be most apparent when looking at how fund companies did in 2019. Passive powerhouse Vanguard led the way in 2019 with inflows of $183B. Fidelity was not too far behind, but not for the reason you might think. The massive Boston money manager’s active funds experienced outflows of $20.8B, but its $91.3B of passive inflows outweighed those losses, earning them third place for net inflows on the year. Looks like Fidelity is adapting to this shift.

Separately, ESG funds saw record inflows of $20.6B, 4x larger than the previous record in 2018. Yes, this is still a small number relative to overall flows, but the magnitude should give every IR program that doesn’t have a solidified ESG story pause.  Everybody’s favorite hot topic is at the forefront of investing in the modern world, and now the numbers are backing that up.  (Hayden Jardine)

IR Best Practices
Lazard's annual wrap of shareholder activism is always a good read to help get ahead of activist tactics and areas of focus, and this year is no different. Activists trained their sights on fewer companies overall in 2019 than in 2018, with 187 companies targeted down from 226 in 2018, but nearing the 5-year average of 193 targets. 40% of targets were non-US companies, up from 30% in the prior year, with increases seen in Japanese and Continental European companies (and fewer UK firms targeted on the balance). More importantly, the trend towards activist involvement in M&A only accelerated, with 47% of all activity sourced, and 60% of all capital deployed, with a thesis based around M&A.  

Coupling this with the latest P&I wrap on activist performance gives a more ominous picture of activists producing strong returns. Bill Ackman's Pershing Square returned 58% for 2019 in its largest hedge fund, and Jana Partners returned 52%; while smaller names like Sarissa Capital ManagementTCI, and Blue Harbour all gained more than 30% in the last year. Strong returns tend attract inflows from asset owners - be prepared to see more from these names going forward...and especially when it comes to M&A, make sure you "think like the activist" and pressure-test the rationale for any M&A you announce. 

 

Questions? Comments? Tipping your company softball team batters with material non-public information? Reach out to your IHS Markit team, or brian.matt@ihsmarkit.com.