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Shareholders’ 2021 corporate governance priorities come into focus

Paul DeNicola Principal, Governance Insights Center, PwC US February 10, 2021

Enhanced climate change disclosures and action on boardroom and workforce diversity are top priorities in 2021 for two of the largest asset managers. That’s the takeaway from BlackRock Chief Executive Officer Larry Fink and State Street Global Advisors (SSGA) CEO Cyrus Taraporevala’s annual letters to business leaders.

These messages are noteworthy not merely because BlackRock and SSGA are among the biggest institutional investors as measured by assets under management. Rather, it’s because of the influence these executives’ points of views have on shaping the shareholder agenda more broadly. The themes they highlight will be among those to watch during the upcoming proxy season and beyond. Let’s take a closer look at what boards need to know about the key themes of this year’s letters.

ESG and COVID-19

The COVID-19 pandemic has underlined the importance of environmental, social, and governance (ESG) matters, according to both investors. With financial markets and the economy in turmoil, companies with stronger ESG profiles fared better than their peers, they said. Taraporevala noted that companies that had invested in employee safety and cybersecurity or studied the effects of climate change were better positioned to navigate the uncertainty of the pandemic. Fink made the case that the COVID-19 crisis has accelerated the reallocation of capital toward sustainable investments.

Climate change

Like last year, climate change was the focus of Fink’s 2021 letter. To avoid catastrophic changes to the environment, net greenhouse gas emissions must fall to zero by 2050, he wrote. He emphasized the importance of preparing for the economic changes brought on by this transition. BlackRock is looking for companies to disclose a plan for how their business models will adapt to a net zero economy. It also wants them to disclose how that plan fits into their long-term strategy and how it will be reviewed by their board.

In his letter, Taraporevala noted that SSGA’s 2021 focus will be on specific companies that are especially vulnerable to the transition risks of climate change. SSGA will also engage with companies in less carbon-intensive industries that are particularly at risk from the physical effects of climate change.

BlackRock and SSGA have plenty of company in prioritizing climate change. For example, when Drew Hambly, Morgan Stanley Investment Management’s Executive Director for Global Stewardship, spoke at PwC’s Corporate Directors Exchange in January, he noted that the firm is monitoring how its portfolio companies manage their own climate footprint, as well as how they plan for the impact of climate change on their business.


Companies benefit in many ways from investments in diversity, equity, and inclusion (DE&I), Taraporevala wrote, citing studies that show how diverse management teams and workforces tend to outperform their peers on key metrics from profitability to productivity. Following the protests against racial injustice last year, SSGA sought to increase its focus on the financial risks that companies may face if they don’t improve their racial and ethnic diversity. But publicly available diversity data was lacking.

Taraporevala laid out SSGA’s plan to encourage companies to increase their DE&I disclosures. Beginning this year, it will vote against the nominating and governance committee chairs at S&P 500 and FTSE 100 companies that do not disclose the racial and ethnic composition of their boards, he wrote. And beginning in 2022, the firm will vote against these chairs at companies with boards that do not include at least one member from an underrepresented community. Also, SSGA will vote against compensation committee chairs at companies that do not disclose their EEO-1 forms, a filing required by the US Equal Employment Opportunity Commission that includes workforce diversity data.

BlackRock will press companies to include their long-term plans to improve DE&I in any talent strategy disclosures they make when issuing sustainability reports. Too often, Fink wrote in his letter, racial justice and economic inequality are siloed as social (or the “S” in ESG) issues but doing so can obscure their frequent overlap with environmental matters.

It’s worth noting that proxy advisory firms are also increasingly focused on DE&I. For example, Institutional Shareholder Services has announced that it will begin highlighting Russell 3000 and S&P 1500 companies that lack racial and ethnic diversity on their boards this year. After a one-year transition period, ISS said it may recommend voting against directors on those boards that lack racial and ethnic diversity starting in 2022.

What boards can do now

There is much for directors to digest in BlackRock and SSGA’s letters. We believe boards would be well-served to consider these three takeaways.

  • Don’t lose focus on ESG. The pandemic has challenged companies in unprecedented ways. But it’s important to keep ESG on your board’s agenda. Large shareholders view these issues not in isolation but rather as being intrinsically linked. Our recent publication, ESG oversight: The corporate director’s guide, provides a good overview.
  • Be proactive on DE&I. Boardroom and workforce diversity aren’t new issues for shareholders, but their focus on them is intensifying. Rather than waiting for investors, lawmakers, stock exchanges, or regulators to force their hand, directors would do well to act now while they may still do so on their own terms.
  • Stay on top of key data. Expectations around climate and diversity disclosures are rising. To provide effective ESG oversight, boards should make sure they have access to the right data. One effective way to accomplish this is through data dashboards that can provide a clear, contextualized picture of important information.