Investment giant BlackRock will continue to view climate risk as an investment risk, according to the firm’s Chairman and CEO Larry Fink’s annual letter to investors released today, that addressed a series of claims by anti-ESG politicians, such as accusations that BlackRock forces companies to reduce emissions, or that the firm “boycotts” energy companies.
While the letter said that BlackRock will view climate and energy transition considerations similar to other long-term risk and opportunity drivers, Fink stated, “it’s not our place to be telling companies what to do.”
BlackRock, as the largest global investment management company, and a leading voice in the investment community on climate change and energy transition-related investment themes, has found itself at the center of a vocal anti-ESG movement by Republican politicians in the U.S., who have accused the firm of following a social agenda, or of “boycotting” and working to harm energy companies.
The U.S. anti-ESG push has seen Florida pull $2 billion in assets from BlackRock’s management, had the firm placed on a list of ESG-supporting asset managers subject to potential divestment by Texas, and subject to accusations of “boycotting” energy companies by 19 state Attorneys General. In a hearing in December, a representative of the company was questioned by Republican lawmakers on the Texas Senate Committee on State Affairs who claimed that support for ESG was part of “pushing a narrow political agenda.”
The letter, which focused mostly on macroeconomic issues such as inflation, rising rates and emerging stresses in the banking sector, dedicated significant space to climate and energy transition-related issues, and addressed several of the anti-ESG claims.
While BlackRock has repeatedly been accused of following a “woke” agenda in its sustainability focus, Fink points out the importance of “taking a long-term view of what will impact returns,” noting that climate risk and the transition to a low carbon economy are likely to have a material investment impact, with some sectors already affected – such as rising insurance costs related to shifting weather patterns and increasing natural catastrophes.
“In the near term, monetary and fiscal policy will be the major driver of returns. Over the long run, investors also need to consider how the energy transition, among other factors, will impact the economy, asset prices, and investment performance.
“For years now, we have viewed climate risk as an investment risk. That’s still the case.”
In addition to managing risk, Fink said that the firm also aims to help clients benefit from the significant investment opportunities arising from the transition to a low carbon economy, highlighting in particular the massive flow of capital coming to markets such as infrastructure, carbon capture and clean energy as a result of government initiatives including the U.S. Inflation Reduction Act.
“Some of the most attractive investment opportunities in the years ahead will be in the transition finance space. Given its importance to our clients, BlackRock’s ambition is to be the leading investor in these opportunities on their behalf.”
Acknowledging that not all clients are interested in energy transition-focused investing, Fink added:
“We have clients who want to invest in ways that seek to align with a particular transition path or to accelerate that transition. We have clients who choose not to. We offer choice to help clients reach their investment goals, and we manage their assets consistent with their objectives and guidelines.”
While the anti-ESG claims include accusations that BlackRock pushes companies to set emissions reduction targets, Fink wrote, “as I have said consistently over many years now, it is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police,” while noting that the firm has been vocal “in advocating for disclosures and asking questions about how companies plan to navigate the energy transition,” in order to enable clients to track material sustainability risk factors and identify investment opportunities. Fink added:
“As minority shareholders, it’s not our place to be telling companies what to do.”
Fink also pointed out that BlackRock continues to work with energy companies, acknowledging that “oil and gas will play a vital role in meeting global energy demands” during the energy transition, and that the firm is continuing to invest in these areas.
“Our approach to investing in the transition is the same as our approach across our platform: we provide choice to our clients; we seek the best risk-adjusted returns within the mandate they give us; and we underpin our work with research, data, and analytics.”
Click here to access the letter.