BlackRock’s pitch for socially conscious investing turns all sides against each other

It was a trumpet call to CEOs everywhere.

In 2018, Laurence D. Fink, the longtime CEO of BlackRock, the world’s largest wealth manager, challenged corporate leaders to assess the societal impact of their companies, embrace diversity and consider how climate change might affect long-term growth.

“Companies,” Mr. Fink wrote in his annual letter to CEOs, “need to ask themselves: What is our role in society? How do we manage our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change?”

Almost five years later, those words have left BlackRock behind amid the increasingly acrimonious and politicized debate about investing with environmental, social and governance or ESG goals in mind. The Republicans accuse the company of “awakened capitalism”. Progressives are calling on BlackRock to “greenwash” and say its message to companies doesn’t go far enough.

In recent months, more than half a dozen Republican state treasurers and auditors have stepped up their attacks on BlackRock, which manages $8 trillion in assets and invests on behalf of hundreds of public pensions. On Dec. December, Florida’s chief financial officer said the state was withdrawing $2 billion from BlackRock because it was “undemocratic” for a big money manager to try to transform society. Eight days later, the North Carolina Treasurer called for Mr. Fink to resign for urging companies to cut carbon emissions.

At the same time, progressive critics are questioning whether the ESG funds and exchange-traded funds being pushed by BlackRock and other asset managers differ in any way from decades-old investment products getting a green makeover. In September, New York City Comptroller Brad Lander, a Democrat, sent the late Mr. Fink a letter expressing concern that BlackRock had backed away from its commitment to promoting net-zero emissions standards.

“Knowing what Larry now knows, I suspect there are elements in his CEO letters that he would have omitted or written differently,” said Terrence Keeley, former global head of BlackRock’s group of official institutions. “He took some big risks in his CEO letters, and that has led to some of the bitter fruits he’s reaping now.” Mr. Keeley, who retired from BlackRock this year, oversaw sovereign wealth funds, pensions and central banks.

Investing with consideration for climate change, diversity, gender and pay equity, employee well-being and the impact of technology on society – collectively grouped under the ESG banner – has become a major focus for asset managers and corporations in recent years BlackRock is leading the charge. Some on Wall Street and in American businesses see a clear benefit in embracing the approach given consumers’ growing focus on sustainability.

A major challenge, however, is that in the absence of regulatory requirements, what constitutes ESG investments is often in the eye of the beholder. A company that incorporates elements of the trend is ripe for attack from politicians and activists for doing too much or too little.

Recently, Bluebell Capital, a small London-based hedge fund, called for Mr Fink’s ouster, who accused him of turning his support for cutting emissions on its head even though he “succeeded in the remarkable task of bringing together the parties on both sides of the… alienating the ESG debate”.

Mr. Fink, who declined to be interviewed for this article, followed up his 2018 letter titled “A Sense of Purpose” a year later by writing that “environmental, social and governance issues are increasingly important to company valuations will”. He signaled to investors that BlackRock would play a leading role in promoting sustainable investment products and would use its power of representation – or the power to vote on behalf of those whose assets the company manages – to urge companies to adopt carbon reduction plans. introduce emissions.

BlackRock quickly became a leader in ESG investing in the United States, launching mutual funds and exchange-traded funds billed as products that allowed investors to place their money in companies that supported climate change initiatives, Diversity promoted in the workplace and avoided countries where workers worked lack basic safeguards.

“Once Larry really embraced ESG, it became a big deal and everyone was really energetic,” said Peter McKillop, a former corporate spokesman for BlackRock who now runs a climate change newsletter and website. At the time, neither Mr. Fink nor BlackRock’s leadership considered the potential for backlash, Mr. McKillop said. “It wasn’t really thought through.”

BlackRock confirmed the issue. “Many people have opinions about how our clients’ wealth should be invested,” a spokesman said in an emailed statement. “However, our fiduciary duty applies to each of our customers. The money we manage belongs to them – not politicians, activists, NGOs or commentators.”

The wealth manager recently stepped up its messaging in this direction, launching an advertising campaign aimed at demystifying its business. In a 30-second TV ad that aired in September, the narrator conveys that BlackRock “from the plains to the shores” is helping Americans “invest in their future and help communities thrive.”

Last year Mr. Fink has attempted to counter the criticism by saying BlackRock is not ideologically driven. In his letter to CEOs this year, he wrote that the company has no plans to divest fossil fuel investments and is not pressuring customers to do so.

At a conference sponsored by DealBook and the New York Times last month, Mr. Fink said, “I actually think we’re going to need hydrocarbons for 70 years.”

So far, Republican state leaders have siphoned just over $4 billion from BlackRock — a handoff compared to the $133 billion the company raised from U.S. investors this year. Yet there are growing calls from Republican treasurers to pull state funds from BlackRock over its ESG policies.

In addition to Florida and North Carolina, state officials from Arkansas, Arizona, Louisiana, Missouri and South Carolina have withdrawn funds from BlackRock. Utah and West Virginia have announced plans to do so.

Mr. McKillop said he believes the criticism from Republican officials is Mr. Fink, a Democrat, which is why he has emphasized that BlackRock has significant oil and gas investments.

“He doesn’t want to lose money, even if it’s a trifling amount,” Mr. McKillop said.

BlackRock isn’t the only big money manager coming under fire in the US.

In mid-December, State Street officials appeared with a BlackRock executive at a legislative hearing in Texas on the impact of ESG investing on the state’s fossil fuel companies. At the hearing, BlackRock executive Dalia Blass pointed out that the company had invested $107 billion in Texas public energy companies on behalf of its clients and achieved superior returns for Texas annuity customers.

At the same time, Republican staffers on the Senate Banking Committee recently released a report criticizing BlackRock, Vanguard and State Street for using their investing power to pressure corporate proxies for measures advocated by progressives.

“Each of these firms proudly uses the voting rights they have garnered from their investors’ money to advance liberal social causes,” the report says.

BlackRock and State Street said they disagreed with the results. BlackRock said the report was built on “flawed premise” and risked “harming millions of everyday investors who depend on mutual funds and exchange-traded funds.” State Street said the report ignores index funds’ “critical role in helping average Americans save for retirement by providing access to low-cost investments.”

Vanguard, one of the largest marketers of index funds, said its mission is “to empower everyday investors to achieve their long-term financial goals.”

Several of the Republican state leaders who have accused BlackRock of complicity in “awakened capitalism” are members of the State Financial Officers Foundation, whose website prominently features an emblem that reads “Educating Americans on the Dangers of ESG.”

Jimmy Patronis, Florida’s Chief Financial Officer, is a charter member. In announcing his decision to withdraw $2 billion from BlackRock, Mr. Patronis said he did not support the company’s “social engineering.”

In an interview, Mr. Patronis said his decision was largely a financial one and based on BlackRock’s performance in midfield, although he added that Mr Fink’s “agenda just gave us some cause for concern”.

Some progressive activists and Democrat politicians are claiming that BlackRock is backing down on its climate change commitments in a bid to mollify conservative critics. Others have claimed that ESG-focused investment products are not as transformative as portrayed. In October, climate activists threw a bucket of coal at BlackRock’s Manhattan headquarters and said they weren’t doing enough to address climate change.

Tariq Fancy, a former head of sustainable investing at BlackRock, said some progressives were starting to call Mr Fink’s support for ESG a little hollow. “ESG is a smoke screen to an extent,” Mr. Fancy said.

One of BlackRock’s more outspoken Democratic critics is Mr. Lander, the New York comptroller whose office has placed $43 billion in public pension funds with the asset manager. In 2020, BlackRock worked with New York to remove $3 billion in fossil fuel investments from two city pensions serving 700,000 people.

In his September letter, Mr. Lander urged Mr. Fink not to back down from his commitment to push companies toward a net-zero carbon emissions standard and chided BlackRock for voting against some shareholder resolutions that “banks and insurers have been asked to stop funding new fossil fuel projects.”

BlackRock, in a Nov. 2 reply to Mr. Lander, said, “Our role is not to deliver any specific decarbonization outcome in the real economy.”

Shaquana Chaneyfield, a spokeswoman for Mr. Lander, said the response disappointed the auditor. “We can only conclude that they are not serious about aligning their climate rhetoric with their actions,” she said.

Hans Taparia, clinical associate professor at New York University’s Stern School of Business, called ESG a marketing strategy aimed at investors who want to feel like their money is making a difference.

“A real change in terms of ESG would mean a drop in profits for many companies, which is why we are seeing something between minute change and greenwashing,” he said. said Taparia.

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