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Taking the Long ViewBlackRock’s Approach to Investor Stewardship
Steve MonnierDirectorCorporate Governance & Responsible Investment, EMEAemail: steve.monnier@blackrock.com
May 28th, 2015
For Professional Clients and Qualified Investors OnlyCG-0040
Contents
2
1. BlackRock’s philosophy to responsible investing in the 21st century
2. Responsible investing at BlackRock in practice
a) Analysis
b) Engagement – how we use our voice
c) Proxy voting – a process as an engagement mechanism
d) Overarching proxy voting principles
e) ESG integration in the investment process
f) Case study
3. Market trends and what we are seeing at BlackRock
4. corporate governance and responsible investing in the
Appendix
Who’s investing in RI strategies?
Responsible investment by asset class
United Nations Principles for Responsible Investment
Investor transparency on voting and engagement
Where to find us
For Professional Clients and Qualified Investors OnlyCG-0040
Responsible investing in the 21st century
For Professional Clients and Qualified Investors Only
Philosophy behind responsible investing at BlackRock
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1. Protect and enhance the economic value of the companies in which we invest on behalf ofclients
2. Consider ESG factors because of their impact on long-term shareholder returns or economicvalue
3. BlackRock does not make social, ethical or environmental value judgments on behalf of ourclients
CGRI Team Look at ESG FactorsExpect companies to
manage ESGrisks
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How a responsible investment program helps protect client assets
We endeavour to integrate responsible investment principles, as applicable to managementstyle, into the investment process across BlackRock’s US$4.652 trillion total assets undermanagement. *
Our Corporate Governance and Responsible Investment program helps us fulfill ourfiduciary duty to our clients to protect and enhance the economic value of their assets.
Corporate governance andenvironmental or social
issues impacting ourinvestments
With management or boardmembers on corporategovernance, including
social, ethical andenvironmental matters
At company annual generalmeetings and special
meetings in the best long-term economic interests of
shareholders
In the market to understandand contribute to thedevelopment of best
practices that promote long-term shareholder value
creation
ANALYZINGENGAGING
(COMMUNICATING)VOTING ENGAGING
Our responsibilities as a fiduciary to our fund investors include
Implemented through the CGRI team
* As of 31/12/2014
For Professional Clients and Qualified Investors OnlyCG-0040
Engagement: How we use our voice
We engage with companies for four main reasons
During voting process
when clarification of
company information is
required
An event at the
company that has
impacted or may impact
long-term company
value
Company is in a sector
or market where there is
a thematic governance
issue material to
shareholder value
Proprietary governance
risk model identifies
company as lagging
peers on ESG matters
that may impact
economic value
We vote at approximately 15,000 shareholder meetingsWe vote on over 130,000 proposals and
conduct approximately 1,400 engagements annually
For Professional Clients and Qualified Investors OnlyCG-0040
1
BlackRock’s proxy voting process as an engagement mechanism
Voting is the broadest based level of engagement we have with companies; it provides a routineopportunity for investors to provide feedback to the board and encourages board andmanagement teams to consider and address investor concerns
Remainder are flagged foradditional research
Oversight committees receivemonthly vote reports and generallymeet quarterly to review voting
Straightforward meetings proceed tovote execution
If warranted, schedule anengagement with the issuer’sexecutives or board members todiscuss key questions
Internally developed guidelines areapplied in determining how to vote
2 3
For exceptional conflict issues,votes are cast as instructed byindependent fiduciary
RESEARCH ANDISSUE SPOTTING
REVIEW ANDENGAGEMENT
VOTEEXECUTION
Vote positions reconciled againstholdings to ensure clean operatingenvironment
Leverage expertise of portfoliomanagers as necessary
In depth review of particularlycomplicated or controversialmatters
Votes are executed through anelectronic platform
Review of research from leadingproxy advisory firms, companymaterials, broker research, andother publicly available news flow
7For Professional Clients and Qualified Investors Only
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Overarching Proxy Voting Principles have been constant over time
Boards and directors
• Independent leadership / balance of power
• Regular re-election of directors
• Sufficient independent directors with diverse and relevant skills and expertise to represent and protect the interestsof all shareholders
• Formal and transparent appointment process informed by outcomes of periodic board performance evaluation
• Board committees to take lead on matters of audit and risk, nominations and governance, and compensation
Auditors and audit-related issues
• Independent auditors
• Quality audit assessment each year
Capital structure, mergers, asset sales and other special transactions
• Process overseen and reviewed by independent directors
• Absence of poison pills
Compensation and benefits
• Performance metrics
• Link to strategy over time
• Pay for performance aligned with peers
Environmental and social factors
• Companies should identify business-specific risks and opportunities related to environmental and social impactsand explain oversight processes
General corporate governance matters
• Provision of sufficient information for investors to understand the company and its performance
• Right to vote on substantive matters of governance such as change of company charter
• Right to call special meeting of shareholders and to propose resolutions to the shareholder meeting
8For Professional Clients and Qualified Investors Only
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Investment evaluation to buy/sellexplicitly includes ESG factors:› Screens› BlackRock proprietary ESG rating› Themes (e.g. renewable energy)› RI Indices
Feedback mechanism into Step 2 based on the mandate and product type
ESG integration into the investment process
Responsible Investment mandate
Relationship management, engagement and proxy voting
Analysis of ESG risks and opportunities at our aggregated investments
Aggregation of investment held by BlackRock globallyacross RI and traditional mandates
Investment evaluation to buy/sellmay include ESG factors:› Fundamental – company analysis› Scientific Active – quant modelling› Index – not applicable
STEP 1
STEP 2
STEP 3
Traditional mandate
STEP 4
STEP 5
STEP 6
For Professional Clients and Qualified Investors OnlyCG-0040
What we are seeing
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Market trends
• In the past two years have seen a growing commitment on the part of institutional investors and assetmanagers to the Principles for Responsible Investment. 2
• Increased in assets under management using SRI strategies from $13.3 trillion in 2012 to $21.4tn in2014 1
• Asset managers are increasingly pursuing shareholder engagement strategies on ESG issues, usingdialogue with portfolio companies as a means to improve the companies’ ESG practices or disclosure. 2
• For both money managers and institutional investors, climate change remains the most significantenvironmental factor in terms of assets. 2
• In Europe a shift towards double voting rights in France and Italy and supported by Shareholder RightsDirective (SRD2), signals some movement away from the principle of one share one vote.
1. 2014 Global Sustainable Investment Alliance Review
2. “Report on US Sustainable, Responsible and Impact Investing Trends 2014”; US Forum for Sustainable and Responsible Investment.
11For Professional Clients and Qualified Investors Only
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What we are seeing at BlackRock
1. Significant interest in ESG integration in Europe, followed by growing interest in Americas andAustralia.
• Growing market 1
• Mainly client driven
• Significant increase in ESG-related questions
• More mandates require some level of ESG integration
– Interest primarily in ESG integration versus RI product, although impact investing and missionbased investment are significant RI product drivers (but of relatively low AUM comparatively)
• Public funds, government and other financial companies (e.g. sub-advised clients and insurancecompanies) comprise the majority of demand among BlackRock’s clients
2. Voting issues of primary concern vary by region but director elections are key globally
Disclosure
Engagement in advance of AGM on contentious proposals.
3. Rise of investor activism in Europe highlighting the importance of ongoing shareholder dialogue anddisclosure
1. 2014 Global Sustainable Investment Alliance Review
12For Professional Clients and Qualified Investors Only
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Q&A
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Appendix
For Professional Clients and Qualified Investors Only
Who’s investing in BlackRock's RI strategies?
15
*As a percentage of BLK’s RI Product Assets Under Management as of 31/12/2014, $252 billion USD or approx. 5.4% of the firm, as a proxyfor the global market
By Client Type
Health 3% Environment 8%
Ex-Weapons 12%
Ethical 77%
By Topic
EMEA 36%
Asia-Pacific 7%
Americas 57%
Public Fund27%
CommingledFund 6%
Corporation3%
Union/Industry0.7%
Subadvisory2%
Government andOfficial 24%
Health Care12%
Insurance 9% HighNet Worth
0.3%
Non-Profit 2%
ProprietaryMutual Fund
14%
By Region
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Responsible investment by asset class
EquityFixed Income Real Estate Real Assets
Fundamental Scientific Index
ESG themedactivemanagement
Environmental& socialscreens
ESGIntegration intofundamentalanalysis
Optimizationsto offseteffects ofscreens onportfolios
Develop andapplygovernance,environmentalor socialsignals
ESGIntegrationthrough quantmodels
ESG themedindex funds andETFs
Environmental& social screens
Activeownership (cannot sell “bad”performers)
Green bonds
ESG themedbond funds
Corporate
Municipal
Emergingmarkets
Sovereigndebtportfolios
Analysis of energy/cost savingopportunities
Consumptionmonitoring
Eco-friendlylandscaping
Regularenvironmentalaudits of ownedproperties
Lighting retrofits
Wastemanagementprograms
Green REITs
Infrastructure
Solar
Wind Farms
Sustainableagriculture
16
Out of 5,175 ESG strategies analysed by the consulting group Mercer, around 57% were in listed equities, 20% infixed income, and the remaining 23% spread across alternatives (Ambachtsheer 2012)
For Professional Clients and Qualified Investors OnlyCG-0040
United Nations Principles for Responsible Investment
Principles
1. We will incorporate ESG issues intoinvestment analysis and decision-makingprocesses
4. We will promote acceptance and implementationof the Principles within the investment industry
2. We will be active owners and incorporateESG issues into our ownership policies andpractices
5. We will work together to enhance oureffectiveness in implementing the Principles
3. We will seek appropriate disclosure on ESGissues by the entities in which we invest
6. We will each report on our activities and progresstowards implementing the Principles
BlackRock signed the UNPRI in 2008
The UNPRI is made up of 6 aspirational statements intended to provide a framework withinwhich non-financial, ESG issues can be taken into account in investment decision-making andcorporate engagement
For Professional Clients and Qualified Investors OnlyCG-0040
Investor transparency on voting and engagement
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BlackRock Voting:
Aim to vote all our holdings
Voting in 94 markets
Voting guidelines published
Voting records published annually
Preliminary figures. From 1 July 2013 to 30 June 2014
For Professional Clients and Qualified Investors OnlyCG-0040
Corporate Governance & Responsible Investment – where to find us
http://www.blackrock.com/corporate/en-zz/about-us/responsible-investment
What to find:
• Engagement, Proxy Voting & ESG Investment Integration
• Global Proxy Voting Guidelines and Proxy Voting History
• Responsible Investment Reports
• CGRI Quarterly Commentary Reports
19For Professional Clients and Qualified Investors Only
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Disclaimers
20
This material is for distribution to Professional Clients (as defined by the FCA Rules) and should not be relied upon by anyother persons.
Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority.Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394.For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock InvestmentManagement (UK) Limited.
Past performance is not a guide to future performance. The value of investments and the income from them can fall as wellas rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchangebetween currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked inthe case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis oftaxation may change from time to time.
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. Theresults of such research are being made available only incidentally. The views expressed do not constitute investment orany other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRockGroup or any part thereof and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in anyBlackRock funds and has not been prepared in connection with any such offer.
© 2015 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ONBLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks ofBlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respectiveowners.
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