BlackRock vs Norway Fund

at Shareholder Meetings:
Institutional Investors’
Votes on Corporate
Externalities
Marie Brière
Sébastien Pouget
Loredana Ureche-Rangau

Abidi Oumeima
Ramanalinjatovo Christianah
Master DEFIS
TABLE OF CONTENTS

01 02
OVERVIEW INVESTOR
ENGAGEMENT

03 04
STUDY & RESULTS &
METHODOLOGY CONCLUSION
 01
OVERVIEW
This paper investigates the engagement of institutional investors with companies to reduce negative
externalities. Specifically, it focuses on the voting behavior of two major global investors, BlackRock
and the Norway Fund, at shareholder meetings.

The problematic addressed in the article is to understand the motivations and incentives of
institutional investors to engage with companies to combat negative externalities, such as climate
change, pollution, and social issues. The article aims to :

1. Investigate whether institutional investors support efforts to mitigate negative externalities.

2. The factors influencing their voting policies on these issues.

The analysis is based on a large dataset of votes on resolutions related to environmental and social
issues, with a particular focus on greenhouse gas emissions.
02
INVESTOR
ENGAGEMENT
Definition

Investor engagement refers to the active involvement of investors in corporate governance and
decision-making processes of the companies in which they have invested.

This involvement can take various forms, such as engaging in discussions with executive managers and
board members, filing shareholder proposals, and voting during shareholder general meetings.

The goal of investor engagement is to influence corporate behavior and policies in a

way that aligns with the interests and values of the investors and their clients or
beneficiaries.
It can also be aimed at addressing issues related to environmental and social
concerns, as well as promoting responsible and sustainable business practices.
Main approaches (1)

1. Universal Ownership:
Universal ownership is a concept that refers to large institutional investors owning shares in virtually
all listed companies and having a long investment horizon.

The underlying premise is that, as universal owners, these institutional investors possess the influence
to engage with companies whose actions may generate negative impacts on other entities within their
investment portfolios, which can compromise the overall portfolio value.

In contrast, corporate executives typically exhibit concentrated ownership in their respective

companies. This structure may give rise to inherent conflicts of interest, as executives may be less
inclined to fully internalize the external effects their companies impose on the returns and value of
other firms.

The universal ownership approach prioritizes financial returns exclusively, emphasizing a

comprehensive and long-term view of investment strategies.
Main approaches (2)

2. Delegated Philanthropy:
Delegated philanthropy is an approach where institutional investors such as pension funds, mutual
funds, and sovereign wealth funds invest on behalf of clients or citizens whose externality-related
preferences may differ from those of companies’ managers.

The fundamental concept revolves around institutional investors actively advancing the values and
preferences of their clients and citizens, thus influencing corporate management to align with these
preferences and make choices in accordance with societal expectations.

The rationale behind this approach is rooted in the acknowledgment of social and environmental
preferences held by the clients or beneficiaries of institutional investors. It reflects a commitment to
integrating these preferences into investment decisions, thereby fostering a harmonious alignment
between financial objectives and broader societal and environmental concerns.
03
STUDY &
METHODOLOGY
Object of study

The study focuses on the voting behavior of two major institutional investors, BlackRock and the Norway Fund,
at shareholder meetings. The researchers collected data on the votes of these investors on 35,382 resolutions
at 2,796 corporations worldwide in 2014.

The Norway fund, is a sovereign wealth fund owned by the
Norwegian government. It is the largest sovereign wealth
fund in the world, with a market value of over $1.3 trillion as
of 2023.
The fund was established in 1990 to invest the surplus
revenues from Norway's oil and gas sector. The fund's
primary objective is to ensure that future generations of
Norwegians will have access to a sustainable source of
income, regardless of fluctuations in oil prices.
The fund is managed by Norges Bank Investment
Management (NBIM), a division of the Norwegian central
bank.
BlackRock is a global investment management
corporation based in the United States. It is the world's
largest asset manager, with over $9 trillion in assets
under management as of 2023
BlackRock is known for its innovative investment
strategies and its use of technology to manage its clients'
portfolios. The company has been criticized for its size
and influence in the financial markets, as well as for its
role in the 2008 financial crisis. However, it remains a
major player in the global investment management
industry.
BlackRock and the Norway Fund are both large, well-diversified investors with significant equity stakes
in almost all major publicly listed firms worldwide.
BlackRock Norway Fund

Total Assets Over $5 trillion Over $1 trillion

Equity Portfolio - 3,648 firms above 3% - Holds equity stakes in about 9,000 companies
- 2,632 above 5% worldwide
- 375 above 10% - Total equity portfolio of more than $500 billion
Corporate Governance Team - 31 persons - Around twelve people
- Vote at more than 15,000 shareholder meetings - Vote on more than 11,000 resolutions at general
- Vote on more than 130,000 proposals yearly meetings annually
Legal Structure Listed corporation since 2009 Monitored by the Ministry of Finance
Run by a board with a fiduciary duty Supervised by the Norwegian parliament
Holdings in US Companies About 3,900 publicly listed US companies N/A

Responsible Investment Has a reputation for backing ESG initiatives. Recognized as a leader in the responsible investment
community
Part of "the 25 most responsible asset allocators" list
BlackRock and the Norway Fund both engage in investor activism, but they do so for different reasons
and with different approaches.

BlackRock, as a universal owner, is motivated to engage with companies to improve their financial
performance and reduce negative externalities that could impact the overall value of their extensive
portfolio.

On the other hand, the Norway Fund, as a delegated philanthropist, is more focused on promoting the
values and preferences of its clients or beneficiaries, and therefore engages with companies to
support efforts to mitigate negative externalities in line with the ethical guidelines adopted by the
Ministry of Finance.
This approach is driven by the responsibility to serve as a long-term savings vehicle for the country
and to secure the income from a non-renewable resource by diversifying into a broad portfolio of
international securities.
Methodology

The study compares the investors' votes on resolutions related to externalities with their votes on
other types of resolutions. The researchers are particularly interested in analyzing the investors’
opposition to management on resolutions related to environmental and social issues, as this indicates
their support for efforts to mitigate negative externalities. The study controls for factors such as
agency problems, differences of opinion, and investors' holdings to isolate the impact of preferences
for negative externality mitigation from other effects.

The dataset used in the study includes information on the voting behavior of BlackRock and the
Norway Fund, the characteristics of the resolutions, the ESG performance measures for firms and
countries, and the financial characteristics of the firms. The data is collected from various sources,
including OECD statistics, World Bank Governance Indicators, and MSCI ESG STATS database, among
others.
Methodology (2)

The list of variables used in the analysis includes:

1 2 3

Dependent variable: Independent variables: Control variables:

Opposition to Type of resolution Market capitalization,

management (financial, governance, return on assets, price-
recommendations by social, or to-book ratio, sales
BlackRock and the environmental), ratings growth rate, asset
Norway Fund. of firms and countries turnover ratio, volatility,
on environmental and and analyst dispersion.
social issues, and
various financial
characteristics of the
firms.
Methodology (3)

The study uses a probit regression model to analyze the voting behavior of the two investors.

The dependent variable is a dummy variable equal to one if either or both investors oppose
management recommendations.

The methodology also includes a bivariate probit estimation. The purpose is to capture the joint effect
of BlackRock opposing a management recommendation when the Norway Fund agrees with it, and
the Norway Fund opposing management when BlackRock agrees.

The study also conducts robustness analyses, specifically looking at climate change resolutions as they
are clearly related to externalities. This involves analyzing the opposition of the investors to
management on climate change resolutions.
 04
RESULTS &
CONCLUSION
Results

The results of the study can be summarized as follows:

1. Opposition to management:
The study found that both BlackRock and the Norway Fund were more likely to oppose management
recommendations on shareholder-sponsored resolutions related to environmental and social issues
compared to financial resolutions. This indicates that both investors are more inclined to support
efforts to combat negative externalities.

2. Differential voting behavior:

The Norway Fund showed a stronger tendency to oppose management on shareholder-sponsored
resolutions related to environmental and social issues compared to BlackRock. This suggests that the
Norway Fund is more actively engaged in promoting corporate action against negative externalities
than BlackRock.

3. Voting on climate change resolutions:

The study found that the Norway Fund opposed management more often on resolutions related to
climate change than on other environmental and social resolutions, indicating a strong inclination to
support climate change mitigation policies. In contrast, BlackRock did not show a significant difference
in its opposition to management on climate-related resolutions compared to other types of
resolutions.
Implications

The findings suggest that the Norway Fund, as a responsible sovereign wealth fund, is more
inclined to support resolutions aimed at combating negative externalities, particularly those
related to climate change. This indicates a strong motivation for the Norway Fund to promote
environmental and social policies through its voting activities. On the other hand, the results
for BlackRock, a financially-oriented investor, do not demonstrate a strong inclination to engage
with corporations to address negative externalities, particularly in the context of climate
change resolutions.
Corporations with significant influence on the future of the planet are unlikely to be disciplined
by institutional investors simply because these investors hold well-diversified portfolios.
Instead, institutional investors' corporate engagement policies should reflect the values of their
clients or beneficiaries. This could be achieved through mechanisms such as basing
engagement policies on the values of clients.
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