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BiancoBlue / depositphotos BlackRock CEO larry fink is evidently keen to avoid ruffling any feathers, adopting a devoutly neutral stance on ESG investing in his 2023 annual letter.
Since 2012, the co-founder of the world's largest fund manager has annually published two letters, addressed to portfolio company CEOs and BlackRock investors, respectively. Each letter highlights the fund manager's key expectations and describes how BlackRock will engage with companies in the coming year.
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q4 2022 hedge fund letters, conferences and more
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Larry Fink's Stance On ESG Investing
In 2023, Fink decided to publish one letter addressed to both audiences, leaning away from his typically pro-ESG stance and suggesting the responsibility for driving corporate ESG engagement instead lies with regulators and policymakers.
"As minority shareholders, it's not our place to be telling companies what to do," Fink's latest letter reads. "It is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police."
The BlackRock CEO goes on to say how fossil fuels "will remain important sources of energy for many years ahead," noting the asset manager is "working with energy companies globally that are essential in meeting societies' energy needs."
While Fink has previously stated the importance of fund managers continuing to finance energy companies to effectively support their transition to net-zero, it's hard to ignore the stark differences between his newest letter and Fink's letters of prior years.
Just last year, the CEO's letter to portfolio companies described the "decarbonizing of the global economy [as the] greatest investment opportunity of our lifetime." Fink went on to say that the shift will also "leave behind companies that don't adapt, regardless of what industry they're in."
In 2021, Fink's letters discussed climate risk in a similar light, stating "no issue ranks higher than climate change on our clients' lists of priorities. They ask us about it nearly every day."
The change in sentiment is also translating into declining support for ESG shareholder proposals. BlackRock supported 21.4% of environmental shareholder proposals subject to a vote globally in the 2022 proxy season, compared to 25.8% a season prior, according to Insightia's Voting module.
Shift In The Sentiment
BlackRock's shift in attitude towards ESG is not an isolated event. The U.S. ESG landscape has changed dramatically in the past 12 months, thanks to a growing number of anti-ESG state policymakers, alongside various investors such as the National Center for Public Policy Research (NCPPR), criticizing the ability of fund managers to consider ESG factors when making investment decisions.
"The increasingly polarizing ESG narrative simply isn't helping anyone on either side of the argument," ICGN Board Member Christine Chow said at ICGN's Stockholm Conference last week.
Jim Whittington, head of responsible investment at Dimensional Fund Advisors, also suggested during one panel that "much of the anti-ESG arguments we are hearing are completely incomprehensible," going on to say that the concept of not making ESG considerations in investments is "completely crazy, in my view."
BlackRock has arguably been hit the hardest by the pro- versus anti-ESG argument, facing pressure from both sides to both step up and wind down its ESG efforts.
Anti-ESG policymakers have been quick to take action against the fund manager, with several Republican states divesting from BlackRock funds over claims of the asset manager boycotting the energy sector.
In December, Florida state's Chief Financial Officer Jimmy Patronis revealed his department would pull $2 billion in assets managed by the fund manager. Earlier that year, Louisiana's treasurer divested $794 million, while Missouri also pulled $500 million from BlackRock funds.
More divestments are likely to come. In January, Kentucky was the latest state to threaten to pull funds from BlackRock over what State Treasurer Allison Ball described as "intentionally chok[ing] off the lifeblood of capital to Kentucky's signature industries."
The impact the anti-ESG movement can play on responsible investments has taken a hit, however, with President Biden vetoing a bill this week that sought to overturn a Department of Labor (DoL) rule allowing retirement plan fiduciaries to consider esg risks in decision-making processes.
While this latest rule veto may reassure the more ESG-savvy investors that responsible investing is here to stay, 2023 will likely continue to be a challenging year for larger fund managers like BlackRock which feel more pressure to cater to both sides of the argument.
Rebecca Sherratt, Publications Editor, Diligent, Formerly Insightia