In his 2020 Letter to Chief Executive Officers (CEOs),[1] the Chairman of the world’s largest asset manager identifies climate change as a significant factor affecting companies’ long-term prospects, underlines investor concerns about the proper consideration of climate risk in investment management, commits to placing sustainability at the centre of the company’s investment approach (“including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities”), and ask investee companies to disclose by year-end both climate-related risks – as per the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) – and industry-specific financially material sustainability factors. ). The letter to clients penned by the executive committee in 2020[2] boldly affirms the belief that sustainability should be the company’s new standard for investing.
The 2021 Letter to CEOs[3] chronicles the progress of sustainable investment, calls on companies to transition towards net-zero emissions, reiterates disclosure demands, and affirms the company’s net-zero commitments, which are detailed in the Letter to Clients.[4] The latter represents that the company is “committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner”.
A clear shift is observed in 2022 after the company becomes a primary target of conservatives for its climate-related proxy voting activity. In 2021, the company expanded its climate focus universe from 440 to over a thousand companies, reported nearly 2,300 engagements about environmental issues and failed to support the management of 341 companies and the election of 281 directors due to climate-related concerns.[5] In particular, the company supported the election of independent directors to the board of ExxonMobil against the will of the company’s management.[6] In response to this boardroom battle, conservative tabloid New York Post runs an op-ed by FOX Business Network Charles Gasparino titled “BlackRock’s ‘No. 1’ goal in ‘woke’ investing: Huge ESG-funds haul” on 5 June. The article comes with a picture of the company’s chairman reading he: “has “woken” up to the fact that boarding the environmental-activism train can be immensely profitable, if he’s the one creating the ESG funds that are all the rage among lefty investors.” The oil and gas counteroffensive enters a new phase.[7]
The 2022 Letter to CEOs attempts to recentre the discussion around stakeholder capitalism and its defence. The chairman explains that stakeholder capitalism “is not a social or ideological agenda” but simply capitalism that protects the mutually beneficial relationships amongst stakeholders that allow companies to prosper and deliver long-term value for their shareholders. Lamenting the growing polarisation of society, he warns CEOs against “political activists, or the media” attempting to “hijack” corporate brands to “advance their own agendas”. He presents corporate purpose as the best guide and protection in this treacherous environment and calls on corporate leaders to act as “trusted, competent, and ethical” voices. The letter includes a single section on sustainability, which is used to underline that the company does not have a progressive agenda or an oil and gas divestment policy but is only motivated by economic and fiduciary interests. The chairman clarifies that while net-zero requires collaboration between governments and the private sector, responsibilities are distinct: businesses “cannot be the climate police” as it is the role of governments to design pathways for a just transition (which should ensure continued access “to reliable and affordable energy sources”). The letter concludes with a section titled “Empowering clients with choice on ESG votes,” which does not discuss any ESG issue but sees the company explain that its engagement goes beyond proxy voting and that it is intent on giving each of its clients the control of proxy votes if they so wish (at the time, the option had already been offered to certain institutional clients, but the option has now been made available to clients making up half of the company’s equity index assets). While the commitment to investor empowerment is laudable, devolving the rights that the company was exercising as a fiduciary to its clients reduces the risks that its proxy voting activity trigger retaliatory action by disgruntled corporate interests.
The 2022 letter to clients no longer bears the signature of the executive committee and is presented as a response to those who expressed interest in the net zero transition.[8]
Despite these efforts at placating the oil and gas industry and managing conservative sensitivities, the backlash against the company and its chairman intensified in 2022.
Considering that the support for the net-zero transition expressed in the Letter to CEOs is inconsistent with BlackRock’s assurance that it is supporting the oil and gas industry, the Texas Lieutenant Governor asks the State Comptroller of Public Accounts to place BlackRock at the top of the list of financial companies to be shunned for “boycotting” energy companies.[9] Other states followed suit. The claim of inconsistence was reprised in an August 2022 letter from 19 Republican state attorneys general to Mr Fink, which also alleges that the net-zero policy of the company conflicts with its fiduciary duty and that it is raising antitrust concerns by acting in concert with other financial institutions.
2022 also saw senior Republican figures enter the fray. Introducing antisemitic tropes into a discourse that already had racist undertones former Vice President Mike Pence warned that “a handful of very large and powerful Wall Street financiers” were “manufacturing” a shift towards “woke capitalism” and that ESG was empowering “an unelected cabal of bureaucrats, regulators and activist investors to rate companies based on their adherence to left-wing values”. The target of this unholy alliance: the fossil fuel industry. Indeed, Mr Pence explained that the financial system was being weaponised to “shut down economic growth in the energy industry in the name of environmental extremism”.[10] Other future contestants for the Republican presidential nomination also started agitating against ESG, including biotech billionaire Vivek Ramaswamy and Florida Governor Ron de Santis. At the beginning of 2023, both Mike Pence and former President Donald Trump released ads opposing ESG.[11]
Anti-ESG ads did not stop with presidential hopefuls. Explaining it had not been fooled by the backtracking in the 2022 Letter to CEOs, Consumers’ Research, a non-profit organisation with links to oil money,[12] launched a multi-million-dollar campaign “targeting BlackRock’s bad business practices and Larry Fink’s hypocritical woke principles”. The campaign included a video explaining that the company and its chair were “crushing America from within” (by restricting funding to the fossil fuel industry) and a website WhoIsLarryFink.com outlining “some of the most troubling Fink facts” (while this site is no longer accessible, you may still visit BlackRockLovesChina.com courtesy of the same backers).
The intensifying, rolling fire from the oil and gas industry and its political affiliates would force the asset manager into making even more significant changes to the format, focus, tone, and language of its high-profile annual dispatches.
In 2023, in an act of contrition, the company discontinued both the Chairman’s Letter to CEOs and the Letter to those troublesome clients interested in the net-zero transition. The company explained that the new Chairman’s Letter to Investors, which it did not release until March, could be used by all stakeholders.[13] The letter opens with a reminder that the company is a fiduciary serving a diversity of clients with diverging opinions: the company’s role is to offer choices to help clients reach investment goals and invest assets according to their objectives and guidelines and respect their choices on proxy voting. Running over 20 single-space pages, the letter makes no mention of ESG. The only mention of the environment is a cop-out. The humbled chairman no longer demands TCFD-aligned disclosures (which include Scope 3 emissions when material in an impact sense); instead, he observes that most S&P 500 companies “voluntarily report Scope 1 and Scope 2 emissions” (our emphasis). He further underlines that “it is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police”. This paragraph follows the clarification that past disclosure advocacy was on behalf of the company’s clients since “As minority shareholders, it’s not our place to be telling companies what to do.” This also echoes the assertion, made just before, that «It is not the role of an asset manager like BlackRock to engineer a particular outcome in the economy”. The letter includes as many mentions of sustainability as there are mentions of energy companies. As for the latter, the chairman explains that “oil and gas will play a vital role in meeting global energy demands” during the transition toward lower carbon emissions; that “Many of our clients (…) recognize the vital role energy companies will play in ensuring energy security and a successful energy transition”; and that the company is “working with energy companies globally that are essential in meeting societies’ energy needs”; and that fossil fuels “will remain important sources of energy for many years ahead.”
After the company was named, shamed, investigated, blacklisted, and boycotted for integrating ESG considerations into investment, its chairman admitted to removing the acronym from his annual letter due to it having been “politicised and weaponised» and said he would no longer use a term that “has been misused by the far left and the far right,” and even felt ashamed to having been drawn into a political conversation.[14] As we have documented here, the adjustments made by the company go well beyond that.[15]
However, the anti-ESG backlash showed no sign of abating in 2023 – Republican states passed dozens of new anti-ESG laws, had their attorney generals warn participants in net-zero coalitions that this activity raised consumer protection and antitrust concerns and put asset managers[16] on notice ahead of the proxy season (i.e. to advise them to vote in alignment with “their legal duties to focus on financial return” and not “the policy goals of ESG activists”). The year started with BlackRock being added to the Kentucky boycott list[17] and ended with the House Judiciary Committee subpoenaing BlackRock for documents related to its investigation of “collusive agreements to promote and adopt left-wing environmental, social, and governance (ESG) goals”[18] and Tennessee Attorney General filing a consumer protection lawsuit against BlackRock.[19]
Adjustments beyond words continue in 2024. A truce appears possible in Texas where the company hosted a conference early in February to encourage power grid investments[20] with the Chairman and the Lieutenant Governor exchanging niceties.[21] And the company has dialled down its commitment to the Climate Action 100+.[22]
Footnotes
[1] A Fundamental Reshaping of Finance, Laurence Fink, BlackRock, January 2020.
[2] Sustainability as BlackRock’s New Standard for Investing, Annual Letter to Clients, Global Executive Committee, January 2020.
[3] Larry Fink’s 2021 letter to CEOs, Laurence Fink, BlackRock, January 2021.
[4] Net zero: a fiduciary approach, Annual Letter to Clients, Global Executive Committee, 2021.
[5] Investment Stewardship Annual Report, BlackRock, 2022.
[6] BlackRock explained it was concerned by the company’s lack of a climate-change strategy and that its board would benefit from diversifying its energy experience; it voted in favour of three candidates put forward by activist hedge fund Engine No. 1, which was pushing for higher decarbonisation ambitions.
[7] Freedom of Information Act documents obtained by InfluenceMap (2023) show that in February 2021, the West Virginia Coal Association provided a state lawmaker with a draft anti-ESG bill which he proceeded to introduce. Further documents have a coal lobbyist representing to the head of West Virginia Pensions and Retirement Committee that the bill (HB 3084) is «part of a multi-state initiative to counter back against corporate cancel culture specifically ESG». The lobbyist attaches a pamphlet to his email explaining that ESG is “at the heart” of “an emerging ‘energy discrimination’ movement” that “may actually be the greatest threat to capitalism, property rights, and even human flourishing”. This “new trend in finance” is “pushed by the United Nations and wealthy investment firms like BlackRock” (Bud Brigham, 2021, Energy Discrimination – A threat to capitalism, prosperity and flourishing, Life:Powered, Texas Public Policy Foundation). May 2021 emails obtained from the West Virginia Treasurer by InfluenceMap show involvement of the State Financial Officers Foundation (SFOF) in the anti-ESG movement. While the West Virginia bill was defeated, the movement continued with the SFOF and its close ally the American Legislative Exchange Council (ALEC) working jointly (and running their national meetings in tandem in July 2021). A proposed model legislation titled “Energy Discrimination Elimination Act” prepared by a member of the American Legislative Exchange Council (ALEC) in July 2021 (Setting the Record Straight: The Energy Discrimination Elimination Act, Joe Trotter, ALEC, 17 February 2022) and its revision, known as the “Eliminate Political Boycotts Act” draft policy would inspire anti-ESG boycott bills passed in several states (ironically, the ALEC board was forced to send this successful project to the drawing board after bank associations remarked it was inconsistent with the organisation’s professed commitment to free markets and limited government).
[8] A framework for our clients - How to invest in the net zero transition, BlackRock, 2022.
[9] The Lieutenant Governor draws from the 2020 letters and the 2021 proxy votes in respect of ExxonMobil to represent that BlackRock is using the investor stewardship and allocation channels to pressure investee companies to adhere to a transition pathway that is not required by law, which, in the sense of Senate Bill 13 (the Oil & Gas Investment Protection Act) constitutes boycott (Lt. Gov. Dan Patrick: Letter to Comptroller Hegar to Place BlackRock at the Top of the List of Financial Companies that Boycott the Texas Oil & Gas Industry, Office of Lieutenant Governor, 19 January 2022). In August 2022, the Comptroller concluded that BlackRock and nine European firms were boycotting the energy industry (participation in Climate Action 100+, the Net Zero Banking Alliance, or the Net Zero Asset Managers initiative triggered investigation and companies reportedly found to have opted for high-ambition implementation were blacklisted).
[10] Republicans Can Stop ESG Political Bias – The progressive left is using it to advance goals it could never hope to achieve at the ballot box, Mike Pence, Wall Street Journal, 26 May 2022.
[11] Pence’s nonprofit rolls out digital ad campaign to take on ESG – Effort comes as Pence picking up activity amid 2024 speculation, Aaron Kliegman, Fox News, 22 February 2023; Trump Adds His Voice to Republicans Condemning ESG Investing, Mark Niquette, Bloomberg, 25 February 2023.
[12] Consumers’ Research was acknowledged as a diamond sponsor by SFOF in 2021 and 2022.
[13] Larry Fink’s Annual Chairman’s Letter to Investors, Laurence Fink, BlackRock, March 2023.
[14] BlackRock CEO Larry Fink says he no longer uses term ‘ESG’: ‘It’s been totally weaponized’, Cheyenne Ligon, P&I, 26 June 2023.
[15] As we were editing this paper, we learned that BlackRock had downscaled its participation in the Climate Action 100+ coalition by transferring it to BlackRock International; JP Morgan Asset Management, State Street Global Advisors, and PIMCO withdrew (Climate Action 100+ reaction to recent departures, Climate Action 100+, 26 February 2024).
[16] Dear Asset Manager Letter of 30 March 2023, signed by 21 Republican Attorneys General.
[17] BlackRock, Citigroup Among Firms Named Fossil-Fuel Boycotters by Kentucky, Nic Querolo, Bloomberg, 3 January 2023.
[18] Chairman Jordan Subpoenas BlackRock and State Street in ESG Investigation, Press Release, The Committee on the Judiciary, House of Representative, 15 December 2023.
[19] Blackrock is accused of confusing consumers by advertising two allegedly inconsistent positions, i.e., return maximisation and environmental impact consideration, of deceiving consumers about the true extent of its commitment to fulfilling ESG aims (as demonstrated by its participation in net-zero coalitions, which cuts across all of its assets, including those not identified as sustainable investments), and of deceiving consumers by overstating the extent to which ESG considerations can affect investment performance (State of Tennessee vs. BlackRock, Inc., No. 23-cv-618, Williamson County Circuit Court, 18 December 2023).
[20] Lt. Governor Dan Patrick: Statement on the Upcoming Texas Power Grid Investment Summit, Office of the Lieutenant Governor, 29 January 2024.
[21] BlackRock’s Fink Strikes Truce with Texas, Larry Light, Chief Investment Officer, 13 February 2024.
[22] Climate Action 100+ reaction to recent departures, Climate Action 100+, 26 February 2024.
