BlackRock, the world’s largest fund manager, has launched a defence of its position on ESG after being accused of potentially being in breach of its “fiduciary and legal obligations”. The accusation came from the attorney generals of 18 US states in a letter written to the fund manager.
In a letter, BlackRock says claims made by the attorney generals (AGs) involve a number of misconceptions and defends its climate change policies, emphasising that its participation in a number of ESG-related initiatives is “entirely consistent” with the fund manager’s obligations.
“Governments representing over 90% of global GDP have committed to move to net zero in the coming decades,” says BlackRock. “We believe investors and companies that take a forward-looking position with respect to climate risk and its implications for the energy transition will generate better long-term financial outcomes.”
The clash between BlackRock and the AGs is the latest episode in an ongoing backlash against ESG investing. Many republicans have condemned ESG as part of a “woke” liberal agenda. They argue fund managers should be focused solely on financial returns and not on social issues such as the environment and diversity.
At the end of August, Republican governor Ron DeSantis passed laws instructing the state’s pension scheme to prioritise the highest return on investment “without considering the ideological agenda of the environmental, social and corporate governance movement”.
Backlash spreads
Other so-called “red states”—those led by Republican politicians—have joined the backlash. Texas moved last month to bar BlackRock, along with other companies, from conducting business with the state because, it claims, they “boycott energy companies”.
The attorney generals’ letter makes a number of claims about BlackRock and its approach to climate change. It alleges the fund manager is far from “neutral” on the question of energy, contradicting its own public statements; BlackRock, they claim, engaged in the “purpose of activism” when it made commitments to campaign groups, “not that of a neutral fiduciary seeking ‘dialogue’”.; the investor, they argue, is guilty of “mixed motives” rather than acting “solely in the interests” of asset owners; and the fund manager’s policy on “net zero” emissions, the AGs allege, “raises antitrust concerns”.
ValueEdge, a shareholder advisory company based in New York, described the letter as “political theatre, shrill, slanted and completely unsubstantiated”.
BlackRock’s reply is much less ardent, but portrays an organisation determined to stand its ground. The investment manager says the attorney generals made “several inaccurate statements”. It says its engagement with companies is “focused on enhancing transparency”, and it does not “dictate specific emissions targets”.
The letter says BlackRock works to “adhere to our clients’ investment guidelines and objectives”, including those set by pension funds from the attorney generals’ own states. Pension funds, BlackRock points out, are now able to undertake their own AGM voting decisions after the introduction of new technology.
Perhaps most significantly, BlackRock denies antitrust behaviour. The fund manager insists: “We do not coordinate our votes or investment decisions with external groups or organisations.” It adds that its own policies say “its role is to help [clients] navigate investment risks and opportunities, not to engineer a specific decarbonisation outcome in the real economy”.
BlackRock also says that it maintains no boycott of energy companies. Indeed, it says it manages around $170bn invested in US energy companies alone.
Ironically, recent months have seen the launch of anti-ESG funds including Point Bridge’s “MAGA” fund.
Academics argue this is “simply swapping out one set of values for another”. A problem if the argument against ESG investing is that it forces one particular set of political values on investee companies.
There is little chance of BlackRock’s letter marking the end of the ESG debacle in the US but it remains to be seen whether the attorney generals will turn their complaints into legal action. That said, the US ESG debate is now a fixture of a highly polarised political landscape and likely to continue as long as the White House attempts to tackle climate change and the current divisions persist.