• BlackRock redefines ESG engagement amid U.S. backlash.
• Fidelity updates sustainable investing framework in response to EU and UK regulations.
• Moody’s exits ESG ratings, opts for data and ratings from MSCI.

Market Dynamics Driving ESG Evolution

Market forces, including shifting ESG regulations, U.S. anti-ESG sentiment, and increasing competition among ESG service providers, are reshaping asset managers and rating agencies’ ESG integration.

BlackRock’s New Approach

BlackRock, the world’s largest asset manager, is adjusting its engagement and voting strategies on climate issues. The firm’s CEO, Larry Fink, has moved away from publicly using the term ESG due to political backlash but continues to manage over $800 billion in ESG-designated assets. BlackRock recently introduced “Climate and Decarbonization Stewardship Guidelines” for funds focused on low carbon transition, while maintaining a broader engagement policy for other clients. The new policies will prioritize voting and engagement activities on sectors and companies critical to the transition to a low-carbon economy, while the benchmark policy will consider climate-related risks and opportunities where material to long-term financial returns.

Fidelity’s Regulatory Response

Fidelity, a major mutual fund company, has revised its sustainable investing framework to comply with evolving EU and UK regulations. The EU’s Sustainable Finance Disclosure Regulation (SFDR) and new guidelines from the European Securities and Markets Authority require funds labeled “sustainable” to have at least 80% sustainable investments. The UK’s Financial Conduct Authority also introduced Sustainability Disclosure Requirements to help investors assess these funds and avoid greenwashing.

Moody’s Strategic Shift

Moody’s has exited the ESG ratings business, opting to offer data and ratings from MSCI instead. After acquiring Vigeo Eiris in 2019, Moody’s ESG and climate revenues grew modestly to $207 million in 2023, while MSCI’s revenues surged to $472 million. Competitive pressures and consolidation concerns from investors drove this decision.

Related Article: KPMG Report: Integrating ESG into Corporate Governance through Strategic Board-Level Responsibility

G&A Team’s Ongoing Commitment

The G&A team remains vigilant about the impacts of regulatory, political, and business changes on corporate ESG and sustainability reporting. We’re here to help interpret these shifts and guide your sustainability initiatives.