BlackRock flags ESG scrutiny as risk factor in quarterly results for first time

Firm notes increasing scrutiny from stakeholders as a separate risk factor in Q4 results amid growing polarisation.

BlackRock has included the increased scrutiny on ESG as a key risk factor in its quarterly results for the first time, adding the politicisation of the area to a list of factors which could have an impact on its results.

In an earnings release published on Friday the firm warned that “increasing focus from stakeholders regarding ESG matters” could impact its future performance.

The warning joins a series of 28 other factors that the investor chose to highlight to investors as potentially having a material impact, including potential broader threats such as geopolitical unrest, and several relating to BlackRock’s blockbuster acquisition of Global Infrastructure Partners.

The firm has flagged the risks posed by climate change in its quarterly reporting since the start of 2022, but this is the first time ESG-related scrutiny has come up in an earnings release.

Caught in the middle of the ESG culture wars in the US, BlackRock has been criticised both for its actions on ESG and a perceived lack of progress.

The firm is on several state blacklists over alleged boycotts of the energy sector, which it denies, and a number of Republican state treasurers have pulled pension money from the manager.

On the pro-ESG side, New York City comptroller Brad Lander has repeatedly raised the prospect of pulling some of the tens of billions of pension money managed by BlackRock over a perceived lack of progress on climate. The firm has also come under criticism from European asset owners for a perceived weakness on voting and engagement.

BlackRock is yet to file its annual 10-K filing for 2024 with the Securities and Exchange Commission, which will contain a fuller explanation of the risks that investors should be aware of. The 10-K filing in 2023 mentioned divergent views from stakeholders on ESG as a risk, but this was included in the reputational risk category.

Greggory Warren, an equity analyst at Morningstar, told Responsible Investor that BlackRock’s status as the world’s largest asset manager also made it the “biggest punching bag”.

He noted the increasing pressure from both sides of the political spectrum, and said that “there will continue to be consternation on both sides of the argument over whether too little or too much is being affected by the shift in investment criteria”.

While Morningstar’s view is that ESG investing is not going away, Warren said the firm and its competitors are still required to point out risks “to AUM, flows […] from situations like this, even if they may only be minor relative to total AUM”.

BlackRock declined to comment.