February 10, 2020

State Street and BlackRock Tell Public Company Directors That The Time Is Now To Focus On Sustainability and ESG

In January 2020, two of the largest asset managers, State Street Global Advisors (SSGA) and BlackRock, emphasized that they will hold Boards of Directors accountable for not making significant progress on sustainability and their disclosure related thereto. While environmental, social and governance (ESG) issues have been a growing focus for investors and other stakeholders for the past several years, SSGA and BlackRock have now made it clear that climate change is a defining factor for them in considering investments in companies.


On January 14, 2020, BlackRock issued its annual letter in which BlackRock:

  • Endorsed both the industry-specific standards developed by the Sustainability Accounting Standards Board (SASB) and the climate-specific framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) as the benchmark frameworks.
  • Requested its investee companies to disclose information in accordance with SASB’s guidelines by year-end 2020 and in line with TCFD’s recommendations.
  • Stated that it “will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and plans underlying them.”


On January 28, 2020, SSGA released its annual letter in which it announced that beginning this year, it will vote against board members at companies in the S&P 500 that are laggards based on their R-Factor™ scores and that cannot articulate how they plan to improve their score.[1] Beginning in 2022, SSGA will expand its voting action to include companies that have consistently underperformed their peers on their R-Factor scores for multiple years, unless SGGA sees meaningful change.

SSGA emphasized that each company should know its “R-Factor” rating developed by SSGA which measures the performance of a company’s business, operations and governance as it relates to financially material and sector specific ESG issues. For environmental and social scoring, R-Factor leverages the Sustainability Accounting Standards Board (SASB) Materiality Map as the key framework for materiality and will be the key factor used by SSGA in evaluating a company’s performance in this area. SSGA wrote that “[w]e believe a company’s ESG score will soon effectively be as important as its credit rating.”

Key Takeaways

Investors, led by SSGA and BlackRock, are demanding greater sustainability disclosure from public companies, and are beginning to use their voting power in director elections to apply pressure to companies that they do not believe are making sufficient progress in this area. Public companies need to have active plans in place and need to understand how ESG topics affect their companies and evaluate common ESG reporting guidelines from various organizations, such as SASB and TCFD. Companies and their directors should be prepared to engage with shareholders and other stakeholders on ESG topics and indicate the board’s awareness and sensitivity to ESG matters. The appropriate approach to sustainability topics and disclosure for public companies will vary based on industry, size and shareholder composition, among other factors. For companies that already have very focused efforts on sustainability, this may mean enhancing disclosures and taking steps (such as posting updates on the company’s external website, including disclosure in its annual proxy statement, etc.) to help ensure that investors are aware of the company’s efforts in this area. For companies with less focused efforts, it means developing and articulating a thoughtful approach on relevant sustainability topics. All public companies should be prepared to address questions on sustainability topics from investors, and directors should be taking appropriate steps to ensure that they are able to demonstrate that they have exercised appropriate oversight with respect to risks associated with sustainability.

[1] Also applies to companies in the FTSE 350, ASX 100, TOPIX 100, DAX 30, and CAC 40 indices.