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Louisiana to divest $794 million from BlackRock amid ESG row

© Shutterstock / sdx15Blackrock on a mobile phone

The state of Louisiana has announced plans to remove all funds from BlackRock’s (NYQ:BLK) management. This is said to be in part due to concerns about the impact of its ESG investment strategy on financial return, but also regarding the impact on the local fossil fuel industry, a vital part of the state economy.

  • Louisiana officials said it is unacceptable to focus on political or social goals rather than on investors’ returns.
  • BlackRock still invests in oil and gas companies despite sustainability pledges.
  • Several US states have expressed concerns about ESG investments.

Louisiana State Treasurer John M. Schroder said that $560 million worth of Treasury funds have been removed from BlackRock and another $794 million will be pulled out by the end of 2022.

Louisiana’s economy relies heavily on fossil fuels

Schroder wrote in a letter to Larry Fink, BlackRock’s chief executive officer: “This divestment is necessary to protect Louisiana from mandates BlackRock has called for that would cripple our critical energy sector.”

He added: “ESG investing violates Louisiana law on the fiduciary duties which require a sole focus on financial returns for the beneficiaries of state funds. 

“A focus on political or social goals or placing those goals above the duty to enhance investors’ returns is unacceptable under Louisiana law.”

According to official data, Louisiana holds 8% of total US natural gas reserves and in 2021 it shipped over half of total US liquified natural gas exports. 23% of its GDP is tied to the oil and gas industry.

BlackRock faces criticism on both sides of the spectrum

The US investment giant, whose assets under management were valued at $8.5 trillion as of June 30, has been criticised from fossil fuels backers for its sustainability pledges, but also from environmentalists for not taking a stronger stance.

BlackRock previously committed to reach net zero greenhouse gas emissions by 2050, but it still invests heavily in oil and gas. In Texas alone, it holds $100 billion in energy companies.

However, 19 US states wrote to BlackRock in August 2022 to say that ESG investing is harming the competitiveness of the energy industry by pushing for lower emissions.

BlackRock responded: “We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments – and thereby jeopardise pensioners’ financial returns.”

Republicans target ESG but it is a short-sighted strategy

It comes amid a wider boycott on ESG from Republican politicians. 

Florida has banned its $228 billion pension funds from including ESG in their investment decisions, while Texas barred ten companies and 348 ESG-focused funds from conducting activities with the state.

Despite the call that ESG investment strategies are ignoring fiduciary duty regarding financial return, ignoring the importance of sustainability comes across as short-sighted and counterproductive in securing a stable future. Fiduciary duty means a duty of care – and that means a consciousness of the physical and policy risks that may affect business operations.

Florida itself suffered from Hurricane Ian in September 2022, one of the fiercest in the history of North America. A preliminary analysis by the State University of New York suggests that Hurricane Ian presented 10% higher rain rates because of human-induced climate change.

Estimates are that the clean up from Hurricane Ian will run into billions of dollars. Mohsen Rahnam, chief risk modelling officer, RMS said: “If Hurricane Irma in 2017 saw more than 1 million insurance claims, the number of insurance claims for Hurricane Ian will be higher, and the claims will be more complex.”

In fact, RMS analysis has suggested that the Florida hurricane has the potential to be one of the largest, if not the largest, insured catastrophe losses in US history. It expects that all market segments will be impacted by the aftereffects – and a 10% contribution to that level of damage should be a concern for all.

Kirsten Snow Spalding, senior programme director of the Ceres Investor Network, said:“I don’t think these moves by a handful of states are going to convince large institutional investors that they should stop considering material financial risks and opportunities. Mainstream investment markets and plain facts on the ground have identified climate change as a systemic risk that will impact investment portfolios.”

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