News from the front desk: Issue No 333 – On BlackRock’s patience running thin and so is ours
7 April 2017
BlackRock, the world’s largest investment asset manager with US$5.1 trillion under management, is getting fed up with climate change laggards.
A recently released climate risk note and 2017-18 engagement priority statement was so strongly worded that one commentator joked that energy executives may as well imagine the statements being delivered by Darth Vader.
And it’s easy to see why. BlackRock has threatened to vote against the re-election of company directors if they don’t respond appropriately to climate risk.
“For directors of companies in sectors that are significantly exposed to climate risk, BlackRock expects the whole board to have demonstrable fluency in how climate risk affects the business and management’s approach to adapting and mitigating the risk,” its engagement priority statement said.
“We have the same expectation of boards wherever a company faces a material, business-specific risk. We would assess this both through corporate disclosures and direct engagement with independent board members, if necessary.
“Where we have concerns that the board is not dealing with a material risk appropriately, as with any other governance issue, we may signal that concern through our vote, most likely by voting against the re-election of certain directors we deem most responsible for board process and risk oversight.”
Blackrock’s chief executive’s letter to CEOs in 2016 and 2017 reiterated the above, and added “while we are patient investors, we are not infinitely patient”.
“If we do not see progress on the issue and we remain concerned, we will escalate our dialogue, usually to board directors, and in time may vote against the re-election of directors and potentially for shareholder proposals that address our concerns,” the climate risk note said.
“Consistent with our long-term value focus and ‘engagement first’ process, where shareholder proposals on climate risk clearly address a gap in investment-decision and stewardship relevant disclosure, that we believe will lead to material economic disadvantage to the company and its shareholders if not addressed, and management’s response to our prior engagement has been inadequate, we will consider voting in favour of proposals that would address our concern.”
Watch out directors!
Whose information is it anyway? Time to share
In Australia Karl Mallon, a director of Climate Risk, was similarly impatient when he challenged the Insurance Council of Australia on radio this week to share the data it uses for its risk assessment of floods.
The data has been collected via councils, paid for by the public purse, and is provided free of charge to insurers so they can make more intelligent assessments based on real risk rather than slug everyone with the same high premiums in order to protect themselves from what they don’t know.
Yet the local councils don’t want to share that data with anyone else, without a massive charge. The Insurance Council doesn’t think it can, even if it wants to. Mallon says if he could get hold of the data he’d make it available free of charge to everyone.
Mallon penned an open letter in response to the radio program with ABC’s Frank Kelly and our subsequent interview with him and the ICA.
So where does that leave us? With information that is critical to our well-being and future economic security snuffled away in someone else’s commercial booty. This is not right.
There is an equity issue too. Mallon says it’s the most vulnerable people who tend to bear the brunt of climate change. He says they are the ones most likely to be forced to live in potentially flood affected areas because they can’t afford elsewhere.
This was confirmed by a councilor we spoke to at Ballina this week, Sharon Cadwallader, who said that for low lying areas the council was now demanding that the land be built up physically before building consent was granted – at significant cost.
The reason is that building a house up on stilts and leaving a ground floor area for car parking and so on is a false economy. People simply cannot resist making the spaces useable. Often low cost housing for elderly or young people.
In nearby Lismore the impact has been devastating with big numbers of these ground floor residences wiped out and homes lost, she said. Even electrical equipment in ground floor garages is dangerous in floods.
So that’s why the “pads” have been introduced. However, these rules have been relaxed to accommodate affordable housing in a particular area of Ballina.
This reinforces Mallon’s equity argument.
But at least the risk here is known, and the relaxation of flood protective planning rules made consciously, rightly or wrongly.
But the idea of not sharing information on climate or sustainability for that matter seems pretty abysmal. It’s akin to profiteering from disaster.
Allowing insurers to have all the information is not useful because though they price risk they don’t do it long term like financial investors do.
They protect themselves best of all by setting premiums on a year-by-year basis. This makes it possible – and we make no particular insinuations here – for insurers to enticingly offer reasonable premiums for a year or two because and then to raise premiums steeply when the weather changes.
That’s what you do when you are committed to maximising “shareholder value” that is, profits; it’s how things work. It’s a bit like the residents setting up house in those garage; you just can’t resist.
So what are the banks doing? Are they actually awake? Are they banging down the doors of the insurers to share their data. And wouldn’t it be better in the banks’ hands than the insurers given that the banks are in the game for 15 or 20 years and the insurers are in it for 12 months?
And yet pretty much our entire capitalist economy relies on leveraging – or borrowing money against – our assets, which mostly tend to be property. Not many banks will issue you a mortgage based on what you think the value of your business is.
That’s a bit of risk to add to the household debt risk the prudential regulators are currently worried about.
Of course sooner or later you won’t need the data, because the reality has arrived.
In Belongil Beach at Byron Bay values of property have fallen because, well, the place floods and insurers can’t be bothered any more.
“Insurers are walking away in Far North Queensland and if you have an address in Townsville insurance is not available,” Mallon says.
“At Windsor [in Sydney] you can get slugged in $7000.”
Well insurers are in the business to make money. You cannot blame them.
Speaking of data let’s also take a look at universities, who use their brilliant publicly funded resources to produce high quality research for fee paying private entities, only for the results to be locked away because someone has paid that fee. If the entity that wants the information really thinks they are paying a fair price then let them start their own institution and collection of brain power. Let them pay for it all and own it outright. But they don’t, they use the publicly produced ecology of information, take its fruit for a relatively small fee and stuff into a private domain. Irritating.
It’s an issue we are seeing more and more – good quality data in the hands of private outfits or government agencies, who think they are private outfits.
Intellectual property has its place but in our view there is no place for it when it comes to climate change. Or sustainability. Call that hard line. Fine.
But if we are to stop this trajectory we are on we need to collaborate and share all our data and all our learnings and use the exponential sum of it to beat this thing.