Larry Fink's annual letter to CEOs is probably the most-read note in American boardrooms due to the influence the head of the world's largest asset management company has on global money markets. For a number of years now, the powerful BlackRock boss has flagged change, urging his readers to support ESG goals, meaning investing with "environment, social and governance" aspects as priorities.
In this year's letter, published in January, Fink again warned that "every company and every industry will be transformed by the transition to a net-zero world," and added that the only question companies would have to ask themselves was: "Will you lead, or will you be led?"
Currently, BlackRock manages $7.96 trillion (€7.49 trillion) in assets from around the world, including stakes in almost all German blue-chip companies. So its CEO's call for action on sustainability in company policy seems relevant on a global scale.
A small-fry rebellion
BlackRock's ESG push dates back to 2020, when the company said it believes that "sustainability should be our new standard for investing." Its CEO's newfound heart for nature and human rights was met with skepticism at the time. Environmentalists even accused the company of making a brazen attempt at greenwashing its investment policy.
Now, Fink's renewed call has caught the ire of Bluebell Capital Partners, a small investor worth about $250 million with a 0.01% stake in BlackRock, according to the London-based firm.
In a letter to BlackRock's board dated November 9 and first reported in the Wall Street Journal, Bluebell said it is "increasingly concerned about the reputational risk (including greenwashing risk)" to which Fink's recent statements have "unreasonable exposed" BlackRock, and which would fuel "a gap between the 'talk' and the 'walk' on ESG investing."
In addition, Bluebell urged the board to conduct a strategic review of the company's stance on ESG to eliminate inconsistencies and contradictions. While Fink could stay on as chairman, "that role should be split from that of CEO," Bluebell wrote.
Since its launch in 2019, Bluebell Capital Partners has won a reputation for making big gains on small money. As an activist investor it has taken on the likes of luxury retailer Richemont, mining giant Glencore, media company Vivendi and pharmaceutical firm GlaxoSmithKline. Last year, it helped engineer the ouster of Danone Chairman Emmanuel Faber, even though it only had a stake of about €20 million in the French food group.
One of the complaints raised by Bluebell in its letter includes BlackRock's reported opposition to some of those campaigns.
In a statement to DW, BlackRock wrote: "In the past 18 months, Bluebell has waged a number of campaigns to promote their climate and governance agenda. BlackRock Investment Stewardship did not support their campaigns as we did not consider them to be in the best economic interests of our clients."
The talk and the walk
Giuseppe Bivona, partner and chief investment officer of Bluebell, told US broadcaster CNBC earlier this month: "We are criticizing BlackRock for the contradiction and the hypocrisy between what they say and what they do."
Bivona cited BlackRock's ongoing investments in fossil fuels like coal, which would undermine the company's credibility. He also said BlackRock refused to support a Bluebell campaign against chemical group Solvay aimed at stopping the Belgian company from discharging industrial waste from its facility in Rosignano, Italy, into the Mediterranean Sea.
As a result of these failings, Bivona demanded that CEO Larry Fink be replaced. He also urged BlackRock's board to ensure the company stays away from ideological convictions in climate and energy policy. "This issue should not be BlackRock's mission to promote energy policy or to promote any public debate on environmental or social issues," he told CNBC.
Republican pushback in America
In 2022, the largest 10 ESG funds in the US posted double-digit losses, raising criticism mainly from Republican lawmakers about BlackRock's investment strategy. They've accused the asset manager of boycotting fossil industries and putting its sustainable investing policy over investor returns.
"We're an energy state, and energy accounts for hundreds of millions of dollars of tax revenue for us," said Riley Moore, the treasurer of West Virginia, in an interview with the New York Times in May. "All of our jobs come from coal and gas. This is part of our way of life here."
Moore also said BlackRock's call for companies to become more sustainable would be an "existential threat," and added: "We have to fight back." Earlier the West Virginia treasurer pulled $20 million from BlackRock — a trifle of the state's overall investment managed by BlackRock, but a highly publicized PR stunt nevertheless.
In early December, the state of Florida said it would pull about $2 billion from BlackRock because of its ESG investments. In Texas a new law bars the state's retirement and investment funds from doing business with companies that the state comptroller says are boycotting fossil fuels. Conservative lawmakers in 15 other states are promoting similar legislation.
ESG up to a point
Republican anger at BlackRock's ESG push is unsubstantiated, given that the asset manager is still heavily invested in polluting industries, environmental activists say.
Data from 2020 collected by German nonprofit climate organization Urgewald and its French counterpart Reclaim Finance, show that BlackRock had "at least $85 billion" invested in the global coal industry. Moreover, ESG standards were only applied to the firm's actively managed funds and not passive exchange traded funds that make up three-quarters of its assets.
BlackRock itself has admitted that it has often turned a blind eye to its ESG policy.
"We are the world's largest investor in fossil fuel companies, and, as a long-term investor in these companies, we want to see these companies succeed and prosper," Dalia Blass told a hearing of the Texas Senate Committee on State Affairs in January.
Blass, BlackRock's head of external affairs, also said the company has $260 billion invested in fossil-fuel businesses at the moment of which $91 billion are invested in Texas-based firms, including ExxonMobil, ConocoPhillips and Kinder Morgan.
Fink, meanwhile, told a conference organized by the New York Times in November that BlackRock would push for ESG policies, but only if it is in the interest of shareholders.
"We focus on sustainability not because we're environmentalists, but because we are capitalists and fiduciaries to our clients. The fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine a company's success," Fink said.
He also noted that he's never wanted his letters to CEOs to be influential, rather he wanted them to be "topical." They are intended to deliver a "narrative" for the next 20 to 30 years, he said. "If we lose that long-term hope, it's going to be harder for the US to have differential growth."
Whether Bluebell Capital buys Fink's vision is doubtful, but so is its bold attempt to oust the powerful BlackRock CEO. In the end money talks and ESG policies will only succeed if they pay investors enough dividends.
This article was originally published in German.