The world’s largest asset manager is set to allow big pension funds and other sophisticated institutional clients to directly vote on issues from executive pay to climate change at annual meetings in a move BlackRock says will apply to nearly half of the $4.8tn of index equity assets it currently manages.
BlackRock’s decision on proxy voting — where investors have a say at annual meetings — will kick in next year and is the first step by a major asset manager to provide the ultimate owner of votes in a company the right to use them.
While the vast majority of investors rely on their asset managers to cast proxy votes on their behalf, the shift by BlackRock illustrates how large investors want a direct say on issues that include corporate board and director votes, environmental social and governance metrics, auditing standards and pay.
Pension funds and retail investors have complained for years over their lack of ability to vote at annual meetings when using an asset manager.
In a letter sent to clients on Thursday, BlackRock said it “was expanding the voting choice options” for large institutional investors “in certain index strategies”. These holdings are housed within global institutional separate accounts and certain pooled funds managed by BlackRock in the US and the UK. The accounts are customised and closely managed for clients that include large public pension funds.
“We have long been calling for asset owners to be able to have a say in the voting of their shares,” said Maria Nazarova-Doyle, head of pension investments and responsible investing at Scottish Widows. She expressed confidence that BlackRock’s approach “will act as a catalyst for others in our industry to consider how they can more directly facilitate participation in proxy voting”.
BlackRock estimated that 40 per cent of the $4.8tn in index equity assets that they manage is eligible for expanded voting options. This includes $750bn of pooled fund assets, where various client assets are invested together, according to the asset manager.
At the moment, big institutional clients through a separate account mandate can cast their own vote and transmit that decision themselves. Clients can also continue to use BlackRock’s investment stewardship arm, which votes on behalf of a client, according to the asset manager’s own voting policy.
Among the new options starting next year, BlackRock will allow clients to use its voting process to select from a menu of third-party proxy voting policies such as Institutional Shareholder Services. It will also allow certain clients the option to cast a direct vote on individual resolutions or companies of their choice using BlackRock’s voting infrastructure.
“This sort of technological and operational advancement is helping us implement responsible voting practices,” said Chris Phillips, director of institutional relations and public affairs at Washington State Investment Board.
BlackRock said it was exploring ways to solve operational and legal issues and expand proxy voting choice to other investors, including those in exchange traded funds, index mutual funds and other products.
In 2016, pension funds in the UK criticised asset managers for refusing to allow them to decide how to vote at annual meetings unless their investments were held in a separate account, instead forcing them to apply the investment house’s own policies even if they disagreed with that stance.
Asset managers have previously said that allowing clients to vote in pooled funds would be logistically challenging and expensive.