It was a clarion call for chief executives everywhere.
In 2018, Laurence D. Fink, the longtime CEO of BlackRock, the world’s largest asset manager, urged business leaders to assess the social impact of their companies, embrace diversity and think about how climate change could affect long-term growth. could influence.
“Businesses,” wrote Mr. Fink in his annual letter to CEOs, “should ask themselves: What role do we play in the community? How do we manage our environmental impact? Are we building a diverse workforce? Are we adapting? the technological change?”
Nearly five years later, those words have left BlackRock behind amid the increasingly bitter and politicized debate over investing with environmental, social and governance, or ESG, objectives in mind. Republicans accuse the company of “awake capitalism.” Progressives are calling out BlackRock for “greenwashing” and saying the message to businesses 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 and invests $8 trillion in assets on behalf of hundreds of public pensions. On Dec. 1, Florida’s chief financial officer said the state would withdraw $2 billion from BlackRock because it was “undemocratic” for a major asset manager to try to change society. Eight days later, the North Carolina treasurer called on Mr. Fink to resign for pushing companies to reduce carbon emissions.
At the same time, progressive critics question whether the ESG mutual funds and exchange-traded funds being pushed by BlackRock and other asset managers are any different from decades-old investment products that have been given a green makeover. In September, New York City comptroller Brad Lander, a Democrat, sent Mr. Fink a letter expressing concern about BlackRock backsliding on its commitment to promoting net-zero emissions standards.
“With 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 official settings group. “He took some big risks in his CEO letters, and that’s led to some of the bitter fruit he’s now reaping.” Mr. Keeley, who retired from BlackRock this year, oversaw sovereign wealth funds, pension funds and central banks.
Investing with a focus on climate change, diversity, gender and pay equality, employee well-being and the impact of technology on society – broadly summarized under the ESG banner – has become a major focus of asset managers and companies in recent years, with BlackRock leading the attack. Some on Wall Street and in corporate America see a clear advantage in embracing the approach given consumers’ growing focus on sustainability.
But a major challenge is that, in the absence of regulatory guidance, what constitutes ESG investing 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 hedge fund, called for Mr Fink’s impeachment, accusing him of circumventing his support for cutbacks in emissions, even as he succeeded in the remarkable task of alienating parties on both sides of the the ESG. debate.
Mr. Fink, who declined to be interviewed for this article, followed up his 2018 letter entitled “A Sense of Purpose” a year later by writing that “environmental, social and governance issues will become increasingly important to corporate valuations.” He signaled to investors that BlackRock would play a leading role in promoting sustainable investment products and using its power of attorney — or voting rights on behalf of those whose assets the company manages — to push companies to plan for reducing carbon emissions. to assume.
BlackRock quickly became a leader in the United States in ESG investing, bringing to market mutual funds and exchange-traded funds that were billed as products that allowed investors to put their money into companies that had initiatives in the field of ESG. supported climate change, promoted diversity in the workplace and avoided countries where workers lack basic protection.
“When Larry really embraced ESG, it became a big thing, and everyone was very energized,” said Peter McKillop, a former BlackRock corporate spokesman who now runs a newsletter and website focused on climate change. Neither Mr. Fink nor BlackRock’s leadership considered the possibility of backlash at the time, Mr. McKillop said. “It hasn’t really been thought about.”
BlackRock acknowledged the problem. “Many people have opinions on how our clients’ assets should be invested,” a spokesperson said in an emailed statement. “However, our fiduciary duty extends to all our clients. The money we manage belongs to them – not to politicians, activists, NGOs or commentators.”
The asset manager recently expanded its coverage in that direction, rolling out an advertising campaign designed to demystify its company. In a 30-second TV spot that aired in September, the narrator talks about how “from the plains to the coasts,” BlackRock is helping Americans “invest in their futures and help communities thrive.”
Over the past year, Mr. Fink has tried to deflect criticism by saying that BlackRock is not ideologically driven. In his letter to CEOs this year, he wrote that the company had no plans to divest fossil fuel investments, nor was it pressuring customers to do so.
At a conference sponsored by DealBook and The New York Times last month, Mr. Fink said, “I do believe we’re going to need hydrocarbons for 70 years.”
So far, Republican state politicians have pulled just over $4 billion from BlackRock — a pittance compared to the $133 billion the company raised from U.S. investors this year. Still, calls from Republican treasurers are mounting for BlackRock to withdraw state money because of its ESG policies.
In addition to Florida and North Carolina, state officials from Arkansas, Arizona, Louisiana, Missouri and South Carolina have withdrawn money from BlackRock. Utah and West Virginia have announced plans to do so.
Mr. McKillop said he believed the criticism from Republican officials had mostly reached Mr. Fink, a Democrat. That’s why he stressed that BlackRock has significant oil and gas investments.
“He doesn’t want to lose money, even if it’s a minimal amount,” said Mr. McKillop.
BlackRock isn’t the only major asset manager under fire in the United States.
In mid-December, State Street representatives along with a BlackRock executive appeared at a Texas legislative hearing on the impact of ESG investing on the state’s fossil fuel companies. During the hearing, Dalia Blass, a BlackRock executive, pointed out that the company had invested $107 billion in Texas public energy companies on behalf of its clients and generated above-average returns for Texas retirement clients.
At the same time, the Republican staff of the Senate Banking Committee recently released a report criticizing BlackRock, Vanguard and State Street for using their investment power to push for corporate proxy voting for measures advocated by progressives.
“Each of these companies proudly uses the voting rights they acquired with their investors’ money to advance liberal social causes,” the report said.
BlackRock and State Street said they disagreed with the findings. BlackRock said the report was based on “flawed assumptions” and risked “harming millions of everyday investors who rely on mutual funds and exchange-traded funds.” State Street said the report ignored the “critical role of index funds 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 was to “empower ordinary investors to achieve their long-term financial goals.”
Several of the Republican state leaders who have come out accusing BlackRock of engaging in “wake capitalism” are members of the State Financial Officers Foundation, whose website prominently displays an emblem reading: “Educating Americans on the Dangers or ESG.”
Jimmy Patronis, Florida’s chief financial officer, is one of the founders. In announcing his decision to pull $2 billion from BlackRock, Mr. Patronis that 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 “middle of the pack” performance, though he added that Mr. Fink’s “schedule has just given us some cause for concern.”
Some progressive activists and Democratic politicians argue that in an effort to appease conservative critics, BlackRock is backing away from its climate change commitments. Others have argued that investment products focused on ESG are not as transformational as billed. In October, climate activists threw a bucket of coal at BlackRock’s Manhattan headquarters, saying it wasn’t doing enough against climate change.
Tariq Fancy, former head of sustainable investing at BlackRock, said some progressives were beginning to see Mr Fink’s support for ESG as somewhat hollow. “ESG is a smoke screen to some extent,” Mr Fancy said.
One of BlackRock’s more outspoken Democratic critics is Mr. Lander, the New York City comptroller, whose office has invested $43 billion in public pension funds with the asset manager. In 2020, BlackRock partnered with New York to divest $3 billion in fossil fuel investments from two city employee pensions representing 700,000 people.
In his September letter, Mr. Lander with Mr. Fink urged not to deviate from his commitment to drive companies to a net-zero carbon emissions standard and chastised BlackRock for voting against some shareholder resolutions asking “banks and insurers to stop financing new fossil fuels”. projects.”
BlackRock said in a Nov. 2 response to Mr Lander, “It is not our role to bring about a specific outcome of decarbonization in the real economy.”
Shaquana Chaneyfield, a spokeswoman for Mr Lander, said the response had disappointed the comptroller. “We can only conclude that they are not serious about tailoring their climate rhetoric to their actions,” she said.
Hans Taparia, a clinical associate professor at New York University’s Stern School of Business, called ESG a marketing strategy aimed at investors who wanted to feel like they were making a difference with their money.
“Real change regarding ESG would mean a drop in earnings for many companies, which is why we see something between infinitesimal change and greenwashing,” said Taparia.
