By Alex Kimani
The more your firms are seen to embrace the climate transition and the opportunities it brings, the more the market will reward your firms with higher valuations.– Larry Fink, CEO BlackRock Inc. Last month, New York City’s Mayor Bill de Blasio and Comptroller Scott M. Stringer sent shockwaves through the oil and gas sector after they announced that the city’s $226B pension fund plans to divest the majority of its fossil fuel investments over the next five years and also cut ties with other companies that have been contributing to global warming.
In the same month, Rockefeller Brothers Fund, a family foundation built on one of the world’s biggest oil fortunes, followed suit by announcing that it would ditch its oil and gas investments and cease making any new investments going forward. The $5-billion foundation was initially carved from oil money in the 19th century by John D. Rockefeller’s son of the Standard Oil fame.
As expected, a cross-section of fossil fuel apologists dismissed the moves as yet another publicity stunt by left-leaning organizations desperate to burnish their green credentials, while clean energy buffs welcomed them as a beacon for the growing divestment movement.
And now yet another powerful investor has thrown its weight behind the divestment push, BlackRock Inc.(NYSE:BLK), the world’s largest asset manager with $9 trillion in assets under management (AUM).
BlackRock CEO Larry Fink has disclosed plans to pressure companies to do a lot more to lower their carbon emissions by leveraging the massive weight of his firm mammoth asset base.
BlackRock and Larry Fink are not strangers to climate activism.
Back in 2019, BlackRock declared its intention to increase its ESG (Environmental, Social and Governance) investments more than tenfold from $90 billion to a trillion dollars in the space of a decade.
But now, Fink is pushing out the goalposts on climate action and wants companies that he invests in to disclose how they plan to achieve a net-zero economy, which he has defined as eliminating net greenhouse gas emissions by 2050.
And make no mistake about it: With nearly $9 trillion of investments under its watch, BlackRock can certainly throw its weight around. Indeed, last year, the firm voted against 69 companies and 64 company directors for climate-related reasons while placing another 191 companies on watch.
BlackRock plans to put oil and gas companies under the clamps by creating a ‘‘temperature alignment metric’’ for both its public equity and bond funds with explicit temperature alignment goals, including products aligned to a net-zero pathway.
But dedicated as it might be, divesting itself of oil and gas companies is easier said than done for BlackRock.
Not my money
Critics say that BlackRock and Fink have not been moving fast enough to fulfill climate pledges and point at the firm’s $85 billion of assets tied to coal, not to mention big holdings in major oil and gas producers such as Royal Dutch Shell (NYSE:RDS.A) BP Plc. (NYSE:BP), and ExxonMobil (NYSE:XOM).
“BlackRock remains waist-deep in fossil fuel investments and the world’s top backer of companies that destroy the Amazon rainforest and ignore the rights of indigenous people,” environmental group Extinction Rebellion has carped.
BlackRock’s defense: ‘‘It’s not my money.’’
Turns out that much of BlackRock’s fossil fuel companies are held in passive index funds, meaning it cannot divest.
BlackRock though says it’s working behind the scenes with coal companies and urging them to adopt cleaner technologies. Fink acknowledges that financial markets have been slow to reflect the threat posed by climate change but has promised that:
“In the near future–and sooner than most anticipate–there will be a significant reallocation of capital.”
At least BlackRock appears to have its priorities right.
Some money managers are defending their decision to continue buying oil and gas stocks by claiming that divestitures don’t get these companies to change.
According to Mark Regier, vice president of stewardship at Praxis Mutual Funds:
“There’s a fundamental mythology in the divestment movement that when you divest, you’re somehow fundamentally hurting that company, and that’s just not how the markets work. When we sell, someone else buys.’’
Chris Meyer, manager of stewardship investing research and advocacy at Praxis, says that by selling oil and gas stocks, investors are missing the opportunity to advocate for change and also fail to support companies powering a transition to green energy.
Praxis owns shares or green bonds from companies such as The Southern Company (NYSE:SO), ConocoPhillips (NYSE:COP) and NiSource Inc. (NYSE:NI).
Praxis cites its decision to stick with NiSource Inc. (NYSE:NI), an energy holding company that operates as a regulated natural gas and electric utility, as a textbook example of what can happen when [large] investors advocate for change. Praxis says that it started engaging with NiSource back in 2017 and managed to convince the utility to commit to a complete coal phaseout by 2028 to be fully replaced with wind and solar power generation. If successful, that scale of renewable investments will cut Indiana’s overall greenhouse gas emissions by 90%, according to Meyer.
But claiming that continuing to invest in oil and gas companies is a great opportunity for climate advocacy is questionable wisdom at best and downright disingenuous at worst.
Investors have usually voted on this with their wallets, and that strategy has so far proven to be effective in forcing change.