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Portfolio > Portfolio Construction > ESG

BlackRock CEO Infuriates Republicans and Climate Activists Alike

By Alastair Marsh

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What You Need to Know

  • Larry Fink just sent his 10th annual letter to fellow CEOs, which reaffirmed his devotion to capitalism and oil, gas and coal companies.

Larry Fink, the chief executive officer of BlackRock Inc., is drawing a lot of ire these days for someone who’s attracting record inflows from investors.

Climate activists accuse him of being full of “hot air,” while pro-fossil-fuel Republicans have started blacklisting BlackRock from their U.S. states. The one thing the two sides have in common is that neither seems to like Fink’s approach to sustainable investing.

Fink, whose firm now manages more than $10 trillion, sent his 10th annual letter to fellow CEOs late Monday. In it, Fink reaffirmed that his devotion to capitalism is what guides him, and that divesting from oil, gas and coal companies isn’t in the cards.

But the 69-year-old also spoke of the inevitable shift away from fossil fuels, and warned companies not to cling on to business models that will leave them the “dodo” of the transition to renewable fuels.

His efforts to strike a balance drew criticism from environmentalists. Lara Cuvelier, a campaigner at nonprofit Reclaim Finance, said Fink is going out “to bat for fossil gas as well as oil.” She and others pointed to the urgency of decarbonization as scientists warn that the world needs to end its fossil-fuel addiction.

The International Energy Agency has made clear there’s no room for continued investment in new oil, gas and coal projects if the temperature increase is to be kept within the critical threshold of 1.5 degrees Celsius.

“In his letter, Larry Fink is trying to be everything to everyone and that isn’t true leadership,” said Casey Harrell, senior strategist at the Sunrise Project, an environmental nonprofit based in Australia.

Ben Cushing, fossil-free finance campaign manager at the Sierra Club, said Fink is full of “hot air” and his annual letter is filled with “vague rhetoric.”

Cushing and other climate activists pointed to BlackRock’s continued investment in some of the world’s biggest emitters of greenhouse-gas emissions, with Reclaim Finance and Urgewald having estimated last year that the asset manager had about $85 billion invested in coal companies.

Officials at BlackRock declined to comment.

BlackRock is also alienating conservative-leaning politicians in fossil fuel-reliant U.S. states. Fink’s letter was published the same day that the treasurer of West Virginia, Republican Riley Moore, said he would order that BlackRock no longer be used as part of the state’s banking transactions.

The decision was based on concerns that the New York-based firm “has urged companies to embrace ‘net zero’ investment strategies that would harm the coal, oil and natural gas industries, while increasing investments in Chinese companies that subvert national interests and damage West Virginia’s manufacturing base and job market,” according to Moore’s statement.

A number of other states in the U.S. have issued similar warnings as lawmakers there look into potential boycotts of investment firms that pressure companies to cut their CO2 emissions. These include Alaska, North Dakota and Texas.

Fink, meanwhile, is using a lot more ink to try to explain his position to stakeholders. This year’s letter came in at about 3,300 words, approaching 10 times the length of the first one he penned in 2012.

Bloomberg chart on Larry Fink letters to BlackRock shareholders

Over the years, Fink has coined phrases such as “inclusive capitalism” and “climate risk is investing risk,” and he has been credited with elevating the conversation around environment, social and governance principles.

BlackRock’s ESG voting record, however, has drawn criticism. An analysis by ShareAction, a U.K. nonprofit, found that BlackRock voted in favor of resolutions intended to protect the environment 53% of the time during the most recent proxy season, compared with an average of 70% for members of the climate change group Net Zero Asset Managers Initiative.

BlackRock’s overall voting history has gotten better, having supported 40% of total assessed resolutions in 2021, up from 12% in 2020 and 7% in 2019, and placing the firm’s record ahead of rivals such as Vanguard Group and State Street Global Advisors.

Bloomberg chart on BlackRock proxy voting issues

For now, much of the debate around ESG investing centers on the environment. And though there’s widespread acceptance of the need to replace fossil fuels with renewable energy, there’s not much agreement on how fast that should happen.

Steven Geiger, president of Innova Partners, said the transition should focus on demand, not supply. “Only the suicidal cut the fuel to a plane’s engine before they’ve installed a replacement,” he said.

And some of the world’s best-known investors say divesting from fossil fuels too quickly is bad. Ray Dalio, the founder of hedge fund Bridgewater Associates, this week praised the oil and gas industries for continuing to pump.

“Thank God for the oil producers,” Dalio said Monday on a panel at the Abu Dhabi Sustainability Week summit. He called for a “smart” shift to a green economy and warned that it’s dangerous to “cram” too much into the transition phase.

In the end, Fink’s brand of ESG helps tilt his firm toward an area of sustainable investing that’s gaining huge inflows, without disengaging from the fossil-fuel industry.

“Larry Fink wants climate action,” said Cuvelier at Reclaim Finance. “But not too much.”

(Photo: Bloomberg)

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