US investor Blackrock is facing attack from both sides of the ESG/climate debate, with NYC Comptroller Brad Lander demanding net zero action.
- Blackrock letter highlights increasing political polarisation around ESG.
- NYC’s $43 billion in pension funds is demanding support for climate action.
- It seems that concrete climate action is going to be the only credible way forward for asset managers.
During Climate Week in New York, Lander shared a letter to BlackRock chief executive officer Larry Fink, which raised the growing concern that BlackRock’s investment actions do not align with its climate commitments and requested immediate action by BlackRock to address these contradictions.
The letter follows BlackRock’s response to the Attorneys General from Arizona, Nebraska, Kentucky, and 16 other states regarding the criticism of its ESG (environmental, social, and governance) policies. Its argument was that such policies constitute a dereliction of fiduciary duty and have anti-trust issues.
The thing that doesn’t make sense is that planning operational decisions around risks that arise from environmental, social or governance issues seems, by definition, to be the fulfilment of fiduciary duty. The reality is that ESG itself is no more than a risk-adjusted investment approach.
While there is reasonable concern that ESG needs to be standardised and better regulated, it’s hardly an approach that is wedded to particular goals – it simply provides insight into the risks around political, environmental and social change.
Perhaps understandably, Blackrock does not want to be on the wrong side of any political decision that might impact its investment performance. In recent months it has admitted to supporting fewer climate resolutions at board level, has warned the SEC about potential investor confusion over the introduction of rules regulating greenwash, and it seems that Lander is expressing concern on behalf of the $43 billion in NY funds that the company manages.
The problem here is that these are pension funds. Blackrock is the largest asset manager for three of the New York City pension funds – Teachers’ Retirement System, New York City Employees’ Retirement System and the Board of Education Retirement System. Pension funds have to continue to grow and fund pensions over multiple decades – and the longer term the investment horizon, the more important the integration of climate risk into investment decisions becomes.
What’s NYC’s problem with Blackrock?
The issue is that while Blackrock has acknowledged climate change as an investment risk, with chief executive Larry Fink advocating for action against that risk, Lander argues that the company is backing down in the face of pushback from US Attorney Generals in Republican states.
All three NYC pension funds have set a goal to reach net zero portfolios by 2040 and have taken significant steps to reach that goal. The letter, however, states that the three NYC Funds climate commitments can only be met with the active support of their asset managers. This means it has to start with BlackRock.
In the letter, Comptroller Lander writes, “If we do not find a way to dramatically reduce carbon emissions in alignment with the Paris Agreement, the harm will not only be measured in lives lost and people displaced; it will also be measured in trillions of dollars lost in our collective portfolios.”
What does NYC want Blackrock to do?
There are three key steps that Lander wants Blackrock to commit to. The first is to publish an implementation plan that makes clear BlackRock’s commitment to achieving net zero greenhouse gas emissions across its entire portfolio, with concrete steps that detail how it intends to reach science-based targets on a specific timeframe and clear mechanisms to regularly report on Scopes 1, 2, and 3 emissions for all assets in BlackRock’s portfolio.
The second is to provide a detailed approach to keeping fossil fuel reserves in the ground and phasing out high-emitting assets.
Finally, the third request is a call to support wider climate action through transparent corporate engagement that requires disclosure of climate-related lobbying, works to end lending and insurance for new fossil fuel supply projects, and pushes for science-based targets at portfolio companies.
The letter states: ““The fundamental contradiction between BlackRock’s statements and actions is alarming. BlackRock cannot simultaneously declare that climate risk is a systemic financial risk and argue that BlackRock has no role in mitigating the risks that climate change poses to its investments by supporting decarbonization in the real economy.
“As a fiduciary cognizant of the risks of inaction, BlackRock must demonstrate a plan to use its position as the world’s largest asset manager, with all the corporate governance responsibilities that go along with that position, to move its portfolio companies to get their businesses in line with a net zero economy.”
Right now, Blackrock seems to be caught between a rock and a hard place. While the company has yet to comment, it will be interesting to see which way it jumps.