How an enormous investment company is responding to Texas pressure over climate policies
From Texas Standard:
BlackRock is one of the world’s largest investment management companies – with assets in the trillions. That equates to a lot of weight the firm can throw around on an issue, such as its recent commitment to limit the effects of climate change.
While many praised the pledge, some in Texas raised concerns about BlackRock’s future fossil fuel investments. Now, the company is finding itself walking a line on the issue.
Ross Kerber has been covering this story as the U.S. Sustainable Business Correspondent for Reuters. Listen to the interview in the player above or read the transcript below.
This transcript has been edited lightly for clarity.
Texas Standard: How long has BlackRock been moving towards more climate conscious investments?
Ross Kerber: It has been a few years. But in the last few years, BlackRock has really focused on encouraging companies to outline how they're going to reduce their own emissions, plan for a warming world and especially disclose a lot more details about their operations and their own greenhouse gas emissions.
What steps have BlackRock executives taken to address concerns about future investments in fossil fuels?
So BlackRock has been trying to position itself both as a climate focused company, but also one that remains invested in fossil fuel companies. And they have explicitly rejected the idea that they should divest from fossil fuels, which is what a lot of climate activists would like them to do.
What's their reluctance? Does it just come down to how much money there is to be made in places like the Permian Basin?
BlackRock says that they can do more good by remaining invested in these companies and help them make a transition to a net zero environment.
Can you tell us about a letter the head of BlackRock issues every year that is considered especially influential in the investment world?
So BlackRock CEO Larry Fink, at the start of each year, issues a letter to other CEOs, companies in which his own firm is often the largest investor. And he outlines a lot of priorities for them and BlackRock's expectations for them in the coming year. And Fink has been very focused on climate issues for the last few years, saying this is something that every portfolio company needs to deal with as a business matter. BlackRock's expectation is that portfolio companies need to deal with this. BlackRock is not so different than a lot of other asset management companies – its rivals – but because of Fink's letter, he's very outspoken, and because of their size, $10 trillion, they get a lot of attention. They become the focus of a lot of this debate.
But there is a rule that could mean that BlackRock could be dropped from Texas pension funds. And now BlackRock is sort of changing its tune?
Yeah, there's a new Texas law that requires the state comptroller to come up with a list of companies judged to be boycotting the fossil fuel industry. And then these could be removed from Texas pension funds. [Texas Comptroller] Glenn Hager's office is still working this up... But BlackRock recently sent around a letter to Texas officials making the case that it remains a friend of the fossil fuel industry.
Now, this wasn't a letter that went out, generally speaking, to investors in BlackRock. It was to Texas officials?
It was Texas officials and trade groups and others in Texas. Technically there was no change in what BlackRock has said from before. I noticed, starting in December, that they had started to make a point of saying in other material that they encourage companies to disclose how they're going to encourage reliable energy supplies and affordable energy supplies, which is one of the arguments for making a slower transition away from fossil fuels or keeping them outright.
BlackRock no doubt has investments in other states where the economy is also heavily dependent on fossil fuels. Any explanation as to why Texas was so important to BlackRock?
Among states that are pushing BlackRock on this question of divestment and boycott, Texas has the most money at stake. The Teacher Retirement System has about $2.5 billion, give or take, under BlackRock's management. For a $10 trillion asset manager, it's not a lot of money, but it's symbolically important, and I think that the company is looking to show that it's taking a middle line here, as you know, they're getting a lot of heat from the other side, from states that are pushing for divestiture of fossil fuel companies.
Well this letter can’t sit well with some of those states. I mean, it’s not like this is a secret – or is it?
It's all right out in the open. And you know, it shows that there's a big policy disagreement about what exactly is the role of fossil fuels in the economy right now. These are giant companies, and the striking thing about it is every one of the companies that BlackRock lists on its letter, like ExxonMobil, ConocoPhillips and Kinder Morgan, and seven others in the letter that BlackRock sent out. Every one of these companies has a sustainability report out there. And they will have some description of how they themselves have embraced some kind of net zero transition plan or some kind of role in this warming world. So what you're seeing here is sort of uncertainty in the business community about what exactly is our role in this energy transition.
How much of this is a kind of a sophisticated greenwashing in a sense?
There are plenty of climate activists who say it's exactly that, who say, this is all a way to make murky a simple need to divest from fossil fuels. That's by far the consensus of the financial investment world. But there are plenty of endowments and starting to be some more state pension funds that are moving to divest from fossil fuels for that reason.