"Asian and European Companies Must Increase Racial and Gender Diversity"… BlackRock Strengthens Investment Guidelines

Demand for Diversity Among Corporate Boards
Asian Companies Likely to Increase Female Executive Hiring Ratios
Active Response to Climate Change Also Expected

[Asia Economy Reporter Naju-seok] BlackRock, the world's largest asset management company emphasizing diversity in 'race and gender' for corporate board appointments, will apply the same principles to investments in Asian and European companies starting next year. It will also ensure that the racial and gender composition of the board reflects the diversity of customers in the respective regions.

[Image source=Reuters Yonhap News]

BlackRock, with assets under management exceeding $7.8 trillion (8,474 trillion KRW), announced these details on the 10th (local time) in its '2021 Stewardship Code Guidelines.' By declaring its stewardship principles that define institutional investors' behavior, BlackRock plans to actively exercise shareholder rights, including voting against board appointments in companies that do not comply.

Diversity is the key principle emphasized by BlackRock in its investment approach. In particular, by applying this principle not only to the U.S. but also to European and Asian companies, it plans to reflect regional standards. For example, in advanced Asian countries, unlike the U.S., minimum gender diversity standards may be introduced. BlackRock stated that "(the) racial and gender composition of companies should be reflected in a context that aligns with the norms of the local community." Accordingly, for Asian companies, the proportion of female board members is expected to be prioritized as a diversity indicator.

To encourage more proactive actions from companies, BlackRock will require reports next year not only on the current racial and gender composition of corporate boards but also on measures to enhance diversity. For large U.S. corporations, it will collect not only the EEO-1 report disclosing the racial and gender composition of employees but also plans to improve diversity, using these for corporate evaluations.

Regarding the reason for incorporating diversity into the stewardship code, BlackRock explained, "A diverse human composition and professional experience contribute to cognitive diversity that enhances board effectiveness," adding, "We believe that an inclusive and diverse workplace contributes to corporate continuity, innovation, and long-term value creation." The logic is that companies reflecting diversity can become competitive enterprises.

BlackRock also revealed that actual changes in companies are occurring through the stewardship code. Among companies that faced opposition votes on board appointments last year due to gender diversity issues, 41% have since improved gender diversity. In the U.S., more active movements have recently emerged. According to Nikkei, New York City has prepared measures requiring 24 large companies such as Walmart, McDonald's, and Nike to disclose the gender and racial composition of their employees. These companies are recipients of New York City's employee pension investments. U.S. listed companies are also announcing policies mandating the appointment of female directors.

BlackRock has also announced proactive responses to climate change issues. It introduced that sustainability issues will occupy an increasingly important part of the stewardship code in the future. It will also require these companies to disclose plans to limit temperature increases to below 2 degrees Celsius by 2050.

Additionally, BlackRock will require information on lobbying activities conducted to achieve corporate strategic goals and will incorporate improvements in board quality, such as enhancing board independence, into the stewardship code.

Earlier this year, Larry Fink, BlackRock's CEO, disclosed these policies in his annual letter. As of the end of June this year, BlackRock designated 440 companies with high carbon emissions as monitoring targets. It voted against 55 board members of these companies and warned 191 board members that it would vote against them if improvements in climate change responses were not made. BlackRock also revealed plans to expand the monitoring target to over 1,000 companies with high carbon emissions next year and to exercise shareholder rights accordingly.

This content was produced with the assistance of AI translation services.