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It was a call to CEOs everywhere.
In the year In 2018, Lawrence D. Fink, a longtime executive at BlackRock, the world’s largest asset manager, urged corporate leaders to assess the social impact of their businesses, embrace diversity and consider how climate change could affect long-term growth.
“Companies need to ask themselves: What role do we play in society? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change?” Mr. Fink wrote in his annual letter to CEOs.
Nearly five years later, those words put BlackRock on the back foot amid growing confusion and political debate over environmental, social and governance — or ESG — goals. Republicans are accusing the company of “crony capitalism.” Progressives are calling BlackRock a “greenwash,” a message to companies that won’t go far.
In recent months, more than a half-dozen Republican state treasurers and regulators have stepped up their attacks on BlackRock, which manages $8 trillion in assets and invests on behalf of hundreds of public pensions. On Dec. 1, Florida’s chief financial officer said the state was pulling $2 billion from BlackRock because it was “undemocratic” for a large asset manager to try to change the community. Eight days later, North Carolina’s treasurer, Mr. Fink, asked to resign because he pushed corporations to cut carbon emissions.
At the same time, progressive critics question whether ESG mutual funds and exchange-traded funds pushed by BlackRock and other asset managers are any different from decades-old investment products that have undergone green reforms. In September, New York City Comptroller Brad Lander, a Democrat, sent a letter expressing concern that BlackRock was backing down on its commitment to introduce net-zero emissions standards.
“Knowing what Larry knows now, I doubt there are any letters from the CEO that he would notice or write differently,” said Terence Kiley, former global head of BlackRock’s official institutions group. “He took some big risks in the CEO’s letters, and that led to the bitter fruit he’s reaping now.” Mr Kiely, who retired from BlackRock this year, oversaw sovereign wealth funds, pensions and central banks.
Investing in climate change, diversity, gender and pay equity, employee well-being and technology’s impact on society – broadly lumped under the ESG banner – has become a major focus of asset managers and companies in recent years. BlackRock is leading the charge. Some on Wall Street and in corporate America see a clear benefit in adopting the approach, with a growing consumer focus on sustainability.
But a major challenge, in the absence of regulatory guidance, involves ESG investing, which is often in the eye of the beholder. A company that includes trendsetting elements is ripe for attacks by politicians and activists doing too much or too little.
Recently, Bluebell Capital, a small London-based hedge fund, called on Mr. Fink to step down, accusing him of reversing his support for reducing emissions even as he “succeeded in a remarkable act of alienating” parties on both sides of 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 with “Environmental, social and governance considerations for corporate evaluations on the rise.” BlackRock has signaled to investors that it will play a leading role in promoting sustainable investment products and using its power of attorney – or the assets the firm manages – to get companies to adopt carbon emission reduction plans.
BlackRock quickly became a leader in ESG investing in the United States, issuing mutual funds and exchange-traded funds that allow investors to put their money into companies that support climate change initiatives, promote diversity in the workplace, and move away from the countries where workers live. Lack of basic protections.
“When Larry really embraced ESG, it became a big deal and everyone was really encouraged,” said Peter McKillop, a corporate spokesman for BlackRock, which now runs a newspaper and website focused on climate change. At the time, neither Mr. Fink nor BlackRock’s management considered the possibility of a reversal, Mr. McKillop said. “It really wasn’t meant to be.”
Blackrock acknowledged the issue. “Many people have opinions about how our clients’ assets should be invested,” a spokesperson said in an emailed statement. “However, our fiduciary duty is to each of our customers. The money we manage belongs to them – not to politicians, activists, NGOs or analysts.
The asset manager has recently expanded its messaging along these lines by launching an advertising campaign aimed at simplifying the business. In a 30-second TV spot that aired in September, the narrator conveyed that “from the fields to the shores,” BlackRock is in the business of helping Americans “invest in their future and communities thrive.”
Last year, Mr. Fink tried to address criticism that BlackRock was not ideologically driven. In a letter to CEOs this year, he wrote that the firm has no plans to divest from fossil fuel investments and is not pressuring clients to do so.
At a conference sponsored by Del Book and The New York Times last month, Mr. Fink said, “I really believe we will need hydrocarbons for 70 years.
So far, Republican state politicians have withdrawn a little more than $4 billion from BlackRock — a pittance compared to the $133 billion the company has taken from American investors this year. Still, calls from Republican treasurers on ESG policies to pull government money out of BlackRock are accelerating.
In addition to Florida and North Carolina, state officials in Arkansas, Arizona, Louisiana, Missouri and South Carolina have withdrawn money from Black Rock. Utah and West Virginia have announced plans to do so.
Mr. McKillop has faced criticism from Republican officials, particularly because he believes Mr. Fink has reached out to the Democratic Party, which is why BlackRock has been emphasizing that it has significant oil and gas investments.
“Even if it’s a de minimis amount, he doesn’t want to lose it,” Mr McKillop said.
BlackRock isn’t the only big asset manager in the U.S. under fire.
In mid-December, representatives from Vanguard and State Street appeared with BlackRock executives at a Texas legislative hearing about ESG’s impact on the state’s fossil fuel companies. At the hearing, BlackRock executive Dalia Blass said the firm has invested $107 billion in public Texas energy companies on behalf of its clients and has produced above-average returns for Texas retirement clients.
At the same time, the Republican staff of the Senate Banking Committee recently issued a report criticizing BlackRock, Vanguard and State Street for using their investment muscle to push for corporate proxy votes for progressive-backed measures.
“Each of these organizations uses the voting power they have received from their investors to advance moderate social goals,” the report said.
BlackRock and State Street said they disagreed with the findings. BlackRock said the report was built on “flaws” and “will hurt millions of everyday investors who rely on mutual funds and currencies.” The State Street report ignored “the critical role index funds play in helping average Americans save for retirement by providing them with low-cost investments.”
Vanguard, one of the largest marketers of index funds, says its mission is to empower “everyday investors to reach their long-term financial goals.”
Several state Republican leaders who have come out to accuse BlackRock of “whack capitalism” are members of the State Financial Officers Foundation, whose website prominently displays the slogan “Educating Americans on the Dangers of ESG.”
Florida Chief Financial Officer Jimmy Patronis is a founding member. When Mr. Patronis announced his decision to withdraw $2 billion from BlackRock, he said he did not support the company’s “social engineering.”
In an interview, Mr. Patronis said the decision was based primarily on financials and BlackRock’s “middle of the pack” performance, although Mr. Fink’s “agenda gave us some room for concern.”
Some progressive activists and Democratic politicians argue that BlackRock is backing away from its climate change commitment in an attempt to appease conservative critics. Other ESG-focused investment products don’t make as much difference as the bill, he said. In October, climate activists threw coal at BlackRock’s Manhattan headquarters, saying it wasn’t doing enough on climate change.
Tariq Fancy, former head of sustainable investing at BlackRock, said some progressives are starting to find Mr. Fink’s support for ESG a little less. “ESG is, to some extent, a smoke screen,” Mr. Fancy said.
One of BlackRock’s Democratic critics is Mr. Lander, the New York City comptroller whose office invests with the asset manager of a $43 billion public pension fund. In the year By 2020, BlackRock has worked 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 urged Mr. Fink not to back down from his commitment to push companies to net zero carbon emissions and “chastised BlackRock for defying shareholder resolutions that asked banks and insurers to stop financing new fossil fuel projects.”
BlackRock, in a November 2 response to Mr. Lander, said: “Our role is not to engineer a specific carbonization effect in the real economy.”
Mr. Lander’s spokeswoman, Shaquan Chanefield, said the response disappointed the supervisor. “We can conclude that they are not serious about matching their climate talk with their actions,” she said.
Hans Taparia, a clinical associate professor at New York University’s Stern School of Business, calls ESG a marketing strategy aimed at investors who want to feel like they’re making a difference with their money.
“Real change in relation to ESG means reduced profits for many corporations, which is why we are seeing something between endless change and greenwashing,” said Mr. Taparia.
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