BlackRock Initiates Universal Suffrage In ETFs

Taking into account the ESG criteria (environmental, social and governance) is increasingly important for many investors and, however, it is not something that so far has fitted too well with another of the trends that are having the most force in the markets : the indexed investment.

This type of approach involves buying a fund that replicates an index, a basket of companies that does not usually include ESG criteria to select who is part of it. However, little by little steps are being taken so that investment in ETFs meets the ESG criteria.

The most important that has occurred this year is the decision made by BlackRock, the world’s leading ETF manager, with more than 2.3 trillion dollars in equity in these types of products (4.8 trillion dollars if their entire index fund offering is included as not all use the ETF format). The US manager has announced that, as of January 2022, it will expand the voting capacity of its participants in index funds.

“More and more investors are interested in having a voice when voting on the securities they hold through our index funds.”

Until now, investors in BlackRock ETFs delegated to the manager the votes in the boards of the companies in which they have investments through this type of funds, something that, for 40% of investors, will change as of January 1 from January. In this way, BlackRock takes the first step towards universal suffrage in indexed investment, which until now has been characterized by the delegation of these rights to the ETF manager.

“More and more investors are interested in having a voice when voting on the securities they have in their portfolio through our index funds. We want to offer the possibility to these clients, while at the same time continuing to support all those who prefer that let the BlackRock management team vote on their behalf, “they explain from the US company.

The figures, how could it be otherwise, taking into account the gigantic assets that BlackRock manages, are enormous: “The option to vote will be available to institutional clients who are invested in strategies indexed by BlackRock, in the United States and the United Kingdom. About 40% of the $ 4.8 trillion we hold in indexed equity products will fall into this group for which there will be voting rights, “says BlackRock.

Exclusion or activism
That large institutional investors have the ability to vote according to their participation in exchange-traded funds could increase the activism on the part of these investors within the boards of these companies.

In fact, one of the most repeated debates within the ESG investment universe revolves around whether it is more appropriate to adopt an exclusion strategy (avoid investing in any company that does not meet the criteria set by investors), or if, on the contrary, the positive impact is greater if investors adopt an activism strategy, that is, use their influence within the company’s shareholders to change its course, and fit the ESG criteria with the company’s corporate strategy .

83% of savers do not invest in ESG funds because 51% are unaware of them
83% of savers do not invest in ESG funds because 51% are unaware of them

In this sense, from Bloomberg they highlight a study entitled “The impact of investment in impact”, from Stanford University, in which the authors conclude that the approach of exclusion is unlikely to have an impact in the future, since that the capital invested with criteria of social responsibility is a very small part of the total.

“The results suggest that, to have an impact, instead of excluding companies, investors concerned about social criteria should invest, and use their voting rights to change corporate policy,” the report notes in its conclusions.

Fulfill their mandates
Juan Prieto, general director of Corporance in Spain, considers that the decision taken by BlackRock is a “very good initiative”, and highlights how in recent months “criticism of an excess of power on the part of the management companies has increased”. “Now, passive management has more and more weight in the market, and these index funds do not have the ability to maneuver,” he explains.

“The problem with the ESG issue in this type of investment is that you delegate your possible influence as an investor. Many investors want to comply with the recommendations, for example from the European Union, but they do not have voting rights to do so if they invest in funds From now on they will have this possibility, something that will help them fulfill their mandates “in terms of ESG, explains Prieto.