Assessing opinion on BlackRock’s actions on climate change and climate activism is like watching two different versions of the same action movie.
BlackRock: Climate Superhero. Or, BlackRock: Climate Villain
Let’s study the two plots.
In BlackRock: Climate Superhero, BlackRock’s intrepid CEO Larry Fink sends two letters – one to clients and one to CEOs – threatening shareholder justice on climate change.
Our hero, Fink, points out that enviro doom is the issue most often raised in company meetings and pledges to vote against lacklustre directors.
He insists companies fully disclose climate risks; announces the integration of ESG into BlackRock’s risk management, and outlines new disclosures on voting decisions and engagements on the climate issue. As well as publishing its own funds’ carbon footprints, coal stocks are jettisoned. And, Fink says, BlackRock will ally with the band of finance justice warriors known as Climate Action 100+.
In BlackRock: Climate Villain, plucky US advocacy group, As You Sow, cuts through the corporate smokescreen to talk truth to power via a shareholder proposal calling upon BlackRock to report how it will implement the ‘Statement on the Purpose of a Corporation’ recently issued by the US Business Roundtable and signed by Fink.
It’s joined by the principled voice of faith-based investor Mercy Investments via another shareholder proposal calling for a report on BlackRock’s proxy voting on ESG shareholder resolutions. The resolution claims that BlackRock’s voting policy is inconsistent with its public statements on climate change.
BlackRock’s actions, which would actually convince critics of its good faith, don’t match its words – As You Sow and Mercy are saying – and it needs to be challenged on that.
Climate activist or climate laggard?
So are there two fund managers called BlackRock? One a climate activist and the other a climate laggard.
Analysing other news about the fund manager confirms the dichotomy.
In the climate activist camp, Brunel Pensions Partnership, a sustainable finance leader, announces it has appointed Blackrock to provide investment risk management to some of its clients. BlackRock is also appointed to advise the New York City pension funds on their divestment of fossil fuels. The manager also launches a record-breaking global renewables fund and Europe’s first ESG high yield bond ETFs. Finally, Fink endorses a new three-point sustainable investment ‘taxonomy’ proposed by the Institute of International Finance (IIF).
On the laggard side, the manager is targeted by Extinction Rebellion climate activists over ‘responsibility’ for deforestation through its investments and for continued fossil fuel holdings. Other activists protest outside its Californian offices. It continues to have one of the worst voting records on climate risk shareholder proposals, according to data from voting data analyst FundVotes and sustainability NGO Ceres, and faces continued accusations of ‘greenwashing’; though these may begin to fall away if Fink’s letters turn out to have actions behind the words.
Will voting practices change?
Is BlackRock’s policy of holding directors and managers accountable and potentially voting against them “where we feel companies and boards are not producing effective sustainability disclosures or implementing frameworks for managing these issues” the same as supporting shareholder resolutions, including those calling on companies to: disclose their alignment with the Paris accord, publish their climate risk management plans and/or to set greenhouse gas reduction targets or publish transition plans whereby energy companies can change their business model to a sustainable one?
It would be a stretch to say that a vote against a director could accomplish all of this.
In some quarters, voting against directors is considered a stronger step than voting to support resolutions calling on them to take certain actions; it is the ‘second step’. And taking the second step before the first is an odd policy.
Furthermore, we have often been told that BlackRock holds shares on behalf of clients, and that without specific instructions from the clients holding those shares that such ESG resolutions should be supported it ‘does not have the authority’ to support them.
In addition, clients’ share ownership is not concentrated in specific funds.
BlackRock’s 6.7% ownership in ExxonMobil, for example, is distributed across many funds, some indexed, some actively managed. Instructions would need to be given to fund managers managing all those funds to support the resolutions, or they would not necessarily result in a large number of shares actually voted in favour.
While it is possible to grasp this obstruction to voting shares in concert, why would it not also apply to voting for or against directors?
This is a problem that the fund manager appears able to overcome since, according to Fink’s letter, it voted against or withheld votes from some 4,800 directors last year.
Not convincing everyone
The Institute for Energy Economics and Financial Analysis (IEEFA) notes, however, that while divestment of coal is occurring in actively managed accounts, this ignores the fact that the majority of BlackRock’s investments are passively managed, indexed funds.
Although the fund has committed to increasing offerings of lower emissions, index-linked alternatives, the IEEFA describes this as “pedestrian and insufficient”, saying that it should be offering a low emissions index default. Thus investors could ‘opt-in’ to investing in fossil fuels and the “complimentary stranded asset risks”. As noted above, and in Fink’s letter, sustainable passive funds will be available to investors.
Another naysayer, Mark Van Baal, CEO of Follow This, the shareholder lobby group, describes Fink’s letter thus: “Rather than demanding impactful actions, Larry Fink is asking for disclosure. Your house is on fire, companies are throwing fossil fuels on that fire, and Larry Fink just asks them to report how many, (to paraphrase Greta Thunberg),” he said.
Van Baal also points to a letter sent by a range of other investors and NGOs such as Trillium Asset Management, Boston Common Asset Management, Ethos Fund, ShareAction, and ClientEarth that attempted to put pressure on BlackRock to back climate-related shareholder resolutions and improve its climate engagements.
Ceres, on the other hand, expressed delight that BlackRock had finally joined Climate Action 100+; though well-known financial journalist, Felix Salmon, has noted that joining CA100+ does not mean that BlackRock will vote for its shareholder resolutions.
Indeed, BlackRock’s joining of CA100+ coincided with a number of protests against it from groups such as the Stop the Money Pipeline campaign, which includes NGOs like Greenpeace, the Sierra Club, EarthRights and 350.org, as well as from Amazon Watch and the BlackRock’s Big Problem campaign.
Closer to home, BlackRock’s employees, in contrast – at least those posting on LinkedIn’s #OneBlackRock site – are very proud of the fund’s new stance on climate risk.
So how will it end, this double-tracked movie, BlackRock: Climate superhero or villain?
Let’s hope it ends well, and that we can guess the outcome soon; for all our sakes.