BlackRock, State Street Admit Signing Net-Zero Pledges They Don’t Act On
…what they are doing to compel companies whose shares they own to get in line with the ESG movement.
BlackRock, State Street Admit Signing Net-Zero Pledges They Don’t Act On
During a marathon ESG hearing, a state senator tells them: 'You can't serve two masters'
December 29, 2022 Updated: January 1, 2023
News Analysis
Texas state senators struggled for more than six hours last week to get straight answers from Wall Street giants BlackRock and State Street, two of the world’s largest asset managers, regarding
what they are doing to compel companies whose shares they own to get in line with the ESG movement.
Having joined global Environmental, Social and Governance (ESG) clubs like Climate Action 100+ and the Net Zero Asset Managers initiative (NZAM), and signed pledges to leverage their voting power as the largest shareholders in 90 percent of the S&P 500 companies to “reach net zero emissions by 2050 or sooner across all assets under management,” the asset managers testified that, in reality, they are doing no such thing.
When asked by Senate Chairman Bryan Hughes to clarify BlackRock’s pledge to Climate Action 100+ “to secure commitments from companies to reduce greenhouse gas emissions consistent with the Paris Agreement,” BlackRock’s Head of External Affairs Dalia Blass responded that BlackRock merely talks to companies whose shares they own to learn about their “material risks and opportunities.”
“We participate in Climate Action 100 to engage in dialogue with other participants, market participants, governments so that we understand issues that are relevant to our clients,” said Blass, who recently joined BlackRock from the Biden Administration where she worked at the Securities and Exchange Commission (SEC). The motto of Climate Action 100+ is “Global investors driving business transition.”
State Senator Bryan Hughes, a Republican, speaks during a Texas Senate Committee hearing in Marshall, Texas, on Dec. 15, 2022. (Consumers’ Research YouTube page/Screenshot via The Epoch Times)
“The website doesn’t say anything about engaging in dialogue in Climate Action 100,” Hughes responded. “BlackRock’s website says, ‘We have joined Climate Action 100 to help ensure the world’s largest greenhouse gas emitters take necessary action on climate change.’ True or false?”
To which, Blass responded, “Sir … what I can say … two things …”
Having repeated the question, Hughes asked, “Can BlackRock send us a witness who can tell us whether that’s a true or false statement on its website today?”
“Sir, if you pulled that off our website, then that is on our website,” Blass responded.
State Street and BlackRock are two of the “Big Three” largest asset managers. Together with Vanguard, they manage approximately $20 trillion in assets on behalf of corporations, governments, and endowments, as well as the savings of tens of millions of people who are investing through vehicles like 401K plans.
Vanguard recently withdrew from its membership in NZAM and was excused from testifying in Texas.
Asset managers who support ESG policies typically make two contradictory claims. In order to make a case that they are not violating their fiduciary duty to people whose savings they manage, they argue that ESG is not an ideology but rather an essential risk-management tool that they use to generate higher returns for their clients.
In a 2021 Euromoney interview, State Street Global Advisors’ Chief Investment Officer Lori Heinel explained that “companies who pay attention to their ESG footprint and profile, and proactively manage that, actually are better managed companies and that accrues to a longer term shareholder result.”
Simultaneously, asset managers claim that, despite what they may have said or pledged, they actually don’t do anything to push the ESG agenda on companies, and are in fact active supporters of the fossil fuel industry.
Blass told the senators that it has $107 billion invested in public energy companies in Texas. “We’ve invested in Texas energy, just the past two years, $31 billion,” she said. “We believe in these investments; we do not boycott oil and gas.”
State Sen. Bob Hall asked: “Where’s the empirical data that supports that net zero is good for the bottom line, that it actually would improve income, improve revenue? And the rest of the things that are stuck in that woke analysis, where is the empirical data that says this will actually be a benefit to the investment?”
Dalia Blass, BlackRock’s Head of External Affairs and Lori Heinel, State Street Global Advisors’ Chief Investment Officer during a Texas Senate Committee hearing in Marshall, Texas, on Dec. 15, 2022. (Consumers’ Research YouTube page/Screenshot via The Epoch Times)
Blass responded that, based on BlackRock’s research, “we believe that an orderly transition to a low carbon economy is much more beneficial for our clients’ portfolios. A disorderly transition can cost the global economy about a 25 percent reduction in GDP.”
Heinel told the Texas senators, “I have no evidence that this is good for returns in any time frame. In fact, we’ve seen the evidence to be quite contrary. Last year if you didn’t own energy companies you did miserably compared to broad benchmarks. The year before, that was quite the opposite … but that was just a happenstance, that’s not because it’s a good investment.”
Regarding compliance with ESG criteria, BlackRock CEO Larry Fink stated at the New York Times 2017 DealBook summit that “behaviors are going to have to change, and this is one thing that we’re asking companies. You have to force behaviors, and here at BlackRock we are forcing behaviors.”
Hughes cited a statement from Fink to CEOs in 2020: “Climate change has become a defining factor in companies’ long-term prospects. … we are on the edge of a fundamental reshaping of finance.” He asked Blass how BlackRock thought finance should be reshaped.
Blass responded that the goal of finance as BlackRock sees it has always been “to find opportunities for our clients and to manage risks in their portfolios so that we can produce the best risk-adjusted returns.” BlackRock’s mission, she said, hasn’t changed.
Hughes told Blass: “What we’re learning is, BlackRock says whatever it needs to say to whoever it’s talking to at the time,” he said. “That’s what we’re experiencing today.”
Heinel testified that, like BlackRock, State Street joined various ESG clubs like Climate Action 100+, Ceres, and the Glasgow Financial Alliance for Net Zero (GFANZ) merely to learn “how to think about climate change,” Heinel said.
“We’re trying to understand how these various risks are becoming as important as traditional financial risks,” citing as an example new taxes that may be imposed in Europe on “companies that they believe are bad actors from a climate standpoint.”
When asked to clarify why companies should follow ESG criteria, asset managers cite the effect of government policies, like taxes and penalties for companies that don’t comply with ESG criteria, as well as state subsidies for renewable energy, all of which are part of what Blass called the “net zero transition, the transition to a low carbon economy.” According to clubs like Climate Action 100+ and GFANZ, the role of asset managers who join these clubs is to compel companies whose shares they own into compliance.
Heinel testified that, as an index fund manager, Vanguard must buy and hold the shares of companies included in a given index such as the S&P 500. Therefore, if they want to influence companies’ behavior, they must work with executives of those companies rather than avoid their shares.
“We engage with companies in our portfolios; we do not divest,” Heinel said. State Street currently owns more than $140 billion in shares of energy companies.
On the other hand, she said, “we do not discriminate against companies in any sector, including energy companies … That means we do not tell those energy companies to shift their strategy, or to drill more wells.”
Texas senators brought up the case of the Pirky power plant, a coal-fired plant located near the hearing site, which though operationally viable is being shut down by its parent company, American Electric Power (AEP), shares of which are owned by BlackRock.
“Climate Action 100 says AEP is one of [BlackRock’s] focus companies, and as you know, Climate Action 100 assesses utility companies based on whether they’ve assigned a retirement date to each and every coal unit with a full phase out by 2040,” Hughes said. He quoted from a paper co-authored by BlackRock and GFANZ, titled “How to Facilitate the Early Retirement of High Emitting Assets,” which stated that asset managers must “manage down the greenhouse gas emissions from their portfolios rather than divest and transfer them to someone with less climate ambition.”
“That means that GFANZ, working with BlackRock, has said it’s better to make the companies keep the coal plants and manage them down, that means shut them down, rather than sell them to someone else who will keep operating them and keep the power and the jobs coming,” Hughes stated.
Blass responded that “managing down” doesn’t mean closing plants and that BlackRock is an investor in carbon-capture technology to reduce emissions.
State Sen. Brian Birdwell noted that one third of Texas electricity generation comes from coal-fired plants and said “we’re scared to death about what you’re going to do to our citizens in the state of Texas.”
“You told us earlier that your objective was to maximize investments,” Hall said. “Now you’re telling us that your objective is zero carbon emissions. Which is it?”
“Our objective as a fiduciary asset manager is to provide the best risk adjusted returns for our clients,” Blass said. “We do that by looking at how the companies are managing their risks and as the global regulators, including here in the United States, are moving more and more towards a regulatory system around net zero and carbon production, we look at how they’re managing that to make sure that long-term they’re able to produce results for our clients.”
Texas State Sen. Lois Kolkhorst said she worried about the “the disadvantage for our country as we bend to ESG but some of our competitors do not.” China has dramatically increased its investment in coal-fired power plants, she said, but “right here in the county in which we sit, we’re going to decommission a coal plant because of ESG scoring; because AEP is being forced to do that to be eligible to compete to get funds.”
“China, Russia, and India are putting their countries first,” Kolkhorst told Blass and Heinel. “While we’re all bending to some scoring where you all sit around a table.”
Hall said that when the pollution and emissions from the construction and disposal of wind turbines and solar panels is factored in, the environmental benefits of renewable energy are unclear.
“All the concrete and steel and construction, that gets left out of the carbon analysis and they just pretend that it only exists once it’s in place and the blades are turning,” Hall said. “The analysis that ignores the manufacturing and the disposal process of solar panels—huge impact to the environment, that gets left out. So we’re going to run around say, ‘Oh, this is low carbon impact.’
“It’s not, it’s a lie.”
The senators asked how BlackRock would respond to a letter from New York City Comptroller Brad Lander charging that BlackRock failed to honor its commitments to NZAM. Lander’s letter was written in response to a letter that BlackRock wrote to 19 state attorneys general in red states who accused BlackRock of putting ideology above its fiduciary duty to investors. In this letter, BlackRock denied it was using its power as the world’s largest asset manager to compel corporations into compliance with net-zero goals.
Lander took the opposite tack from red state AGs, charging that, despite its pledges to various climate clubs, “BlackRock now abdicates responsibility for driving net zero alignment in its own portfolio by saying that it does not ask companies to set specific emissions targets, and that its participation in NZAM does not mean BlackRock is setting or meeting any net zero targets.”
Lander threatened that he would be “reassessing our business relationships with all of our asset managers, including BlackRock, through the lens of our climate responsibilities.”
Blass declined to answer questions regarding what her firm would do in light of New York City’s threat.
BlackRock was recently granted a three-year exemption by the Federal Energy Regulatory Commission (FERC) that allowed it to own up to 20 percent of America’s public utility companies; Vanguard is currently seeking the same approval. Vanguard’s withdrawal from NZAM, which occurred simultaneously with its request for an exemption from FERC, was condemned by climate activist Al Gore as “irresponsible and short-sighted” and by Lander as a “cowardly walk-back.”
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“New York can do whatever they want to do, and the crazy coast can do the whatever they want to do,” Hall said. “This is Texas and we do things a little bit different here. We happen to believe in the truth, we happen to believe in honesty and we believe in having real objectives.”
State Sen. Paul Bettencourt told Blass and Heinel, “you better reconsider your positions because it’s, in my mind, an open and shut case that you’re not compliant with Senate Bill 13.” Texas Senate Bill 13 requires that the state divest from companies that boycott fossil fuels.
“You can’t tell the truth to a simple question,” Bettencourt said. “All the discussion today is managing [the Pirky power plant] effectively down to zero. It means you’re going to shut the plant down decades ahead of its economic life. And that’s not good for this local area, it’s not good for the Texas grid, it’s not good for economic reality as I understand it.”
“I am moving toward a conclusion that your two firms are something we shouldn’t invest in because we have different goals,” Kolkhorst said. “Maybe you can’t serve two masters. Maybe it should be more along the Florida lines where we say: you’ve made a decision, we respect that decision, and we take our marbles and go somewhere else.”
Florida announced on Dec. 1 that it would no longer do business with BlackRock, removing approximately $2 billion of state assets that were under BlackRock’s management. Investment bank UBS downgraded BlackRock’s shares in October, stating that “as performance deteriorates and political risk from ESG has increased, we believe the potential for lost fund mandates and regulatory scrutiny has recently increased.”
The Sierra Club, an environmental organization, condemned the Texas hearing as a “right-wing attack on sustainable finance” and “climate denial,” accusing Texas senators of “weaponizing public office against climate action.”
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The organization stated that “BlackRock recently disclosed that two-thirds of its largest clients, collectively representing $3.3 trillion in assets under management, have committed to support the energy transition through investments in their portfolios. This is almost 1,000 times the overall amount pulled from the asset manager so far by Republican-led states including Louisiana, West Virginia, and Texas.”
A recent survey of 2,000 retail investors by Consumers’ Research found that 70 percent of retail investors said the primary goal of their investments is to save for retirement or supplement their income; only 3 percent said their primary investment goal is to drive sustainability, and 2 percent said it was to drive social change. By contrast, large state pension funds, such as CalPRS, CalSTRS, the New York State Pension System and New York City’s public pension funds, which together control nearly $1 trillion in assets, are active supporters of ESG investing.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
Kevin Stocklin is a writer, film producer, and former investment banker. He wrote and produced "We All Fall Down: The American Mortgage Crisis," a 2008 documentary on the collapse of the U.S. mortgage finance system.