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BlackRock maintains an average 20% stake in every Fortune 500 company alongside rival asset management firms State Street and Vanguard. Fink claimed in his annual letter to investors that he desires to take a “long-term view of what will impact returns” and contended that firms should seriously account for the impact of climate change.
“For years now, we have viewed climate risk as an investment risk. That’s still the case,” he wrote. “Anyone can see the impact of climate change in the natural disasters in California or Florida, in Pakistan, across Europe and Australia, and in many other places around the world. There’s more flooding, more wildfires, and more intense storms. In fact, it’s hard to find a part of our ecology, or our economy, that’s not affected. Finance is not immune to these changes.”
BlackRock is a leading proponent of the environmental, social, and corporate governance movement, also known as ESG, which critics say mingles political and social causes, such as decreasing carbon emissions and achieving racial diversity in a manner that compromises or distracts from profitability. Fink insisted that BlackRock respects client choices with respect to climate investments, citing proxy voting rights the company recently extended to large investors.
He added that the “transition to a low-carbon economy is top of mind for many of our clients” but claimed that “as minority shareholders, it’s not our place to be telling companies what to do.” BlackRock has nevertheless taken “voting action on climate issues” against dozens of portfolio companies, according to an investment stewardship report, while one small ESG firm recently gained three board seats at ExxonMobil with the aid of BlackRock, Vanguard, and State Street.
Fink added that BlackRock desires to “provide insights into how a changing climate and the transition may affect portfolios” over time. “These clients track the transition to lower carbon emissions just as they track any other driver of investment risk,” he remarked. “They want our help to understand the likely future paths of carbon emissions, how government policy will impact these paths, and what that means in terms of investment risks and opportunities. It is not the role of an asset manager like BlackRock to engineer a particular outcome in the economy, and we don’t know the ultimate path and timing of the transition.”
BlackRock’s assets under management declined from $10.0 trillion in the fourth quarter of 2021 to $8.6 trillion in the fourth quarter of 2022, according to the firm’s most recent earnings report. The company, therefore, dismissed several hundred workers and paused most new hires.
Skeptics of the ESG movement say the recent poor performance of ESG funds over the past year discredits the investment approach. Technology stocks, which score highly in ESG ratings due to the underlying companies’ involvement in social issues, have fallen behind outsized profitability from energy stocks, which rank poorly due to worries regarding carbon emissions.
Fink has meanwhile rebuked skepticism toward ESG voiced by some business leaders and conservative lawmakers. “Let’s be clear, the narrative is ugly, the narrative is creating this huge polarization,” he said at the World Economic Forum earlier this year. “We are doing everything we can to change the narrative.”