There is a discussion at Izabella Kaminska's Twitter account regarding the power that financial behemoths such as BlackRock gain from concentrating the dispersed power of the shareholders of, let's say, BlackRock's iShares ETF's.
Two of the types of power that concern us here are rentiership and proxy voting (there is also anti-competitive corporate behavior fostered by the ownership structure but we will leave that for another day).
On rentiership, the ETF sponsors derive not just their profits but their soft power - "Boss, boss, Larry Fink's limo just pulled up in the parking lot, and he's in your spot" - by sitting athwart the capital flows. It's not their capital but they extract value, both tangible and intangible from it.
You don't think Larry Fink moves and shakes at Davos because he is easy on the eyes do you?
He is Davos man, even moreso than Klaus Schwab, because he embodies the financial power, if not the will, of millions of individuals, distilled, and distilled again, into....Larry.
The second form of power is the legal construct that gives rise to the first. Here is BlackRock in their own words:
Public Page 1 of 1
Open-End Fund Proxy Voting Policy
Procedures Governing Delegation of Proxy Voting to Fund Advisers
Effective Date:August 1, 2021Objective and Scope
Set forth below is the Open-End Fund Proxy Voting Policy.
Policy / Document Requirements and StatementsThe Boards of Trustees/Directors (“Directors”) of open-end funds (the “Funds”) advised by
BlackRock Fund Advisors or BlackRock Advisors, LLC (“BlackRock”), have the responsibility for the oversight of voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to delegate the responsibility to vote proxies to BlackRock, subject to the principles outlined in this Policy, as part of BlackRock’s authority to manage, acquire and dispose of account assets, all as contemplated by the Funds’ respective investment management agreements....
There is more but that one paragraph is the heart of the matter.
Recognizing that unless they pass-through at least some of the voting power in the shares underlying the funds, BlackRock rather grudgingly did this, rather than risk losing market share:
ETF Stream
October 8, 2021
BlackRock to offer voting powers to index investors
40% of the firm's $4.8trn equity index assets will be able to vote at shareholder meetings
BlackRock is revolutionising the asset management engagement process by offering the opportunity for institutional investors in certain index strategies to vote directly with companies.
Effective 1 January 2022, institutional investors in some 40% of BlackRock’s $4.8trn equity index assets will be able to vote at shareholder meetings which could drive greater engagement and shareholder action.
The world largest asset manager's decision was made in response to increasing demand from clients for greater participation in proxy voting.
Engagement in index strategies such as ETFs is typically the role of asset managers rather than investors but this latest move represents a significant shift in the proxy voting process.
Investors will have the option to continue to use BlackRock Investment Stewardship (BIS) which has voted at over 17,000 shareholder meetings and held more than 3,600 engagements over the past 12 months, as at 30 June.
The four options for institutional investors are:
- Own your proxy voting
- Choose from a menu of third-party proxy voting policies
- Vote directly on select resolutions or companies
- Continue to use BIS
....MORE
Now will this diminish Mr. Fink's ability to define the terms of what is and what isn't appropriate for the title of "ESG'?
No
Some related thoughts:
ESG: The Swiss National Bank May Be Forced To Sell Some Stocks
The great thing about ESG is that the definitions are so vague it can be practically anything you want it to be.
This is one of the reasons the largest of the asset gatherers, the BlackRock's of the world, and the indexers, the S&P's, are so attracted to those three little letters, they want to be the arbiters of what can carry the imprimatur.
It's also a very au courant product to sell.
"The Conflict Between BlackRock’s Shareholder Activism and ERISA’s Fiduciary Duties"
"Accelerating the Tectonic Shift to Net Zero: Analysis of Larry Fink’s Annual Letter to CEOs"
"The Inherent Conflict Between ESG and Passive Investing"
"Why Extinction Rebellion is wrong about BlackRock"
And many more. Use the search blog box upper left if interesed
