How BlackRock is managing 'the greatest investment opportunity of our lifetime'

In his 2022 letter to CEOs, BlackRock (BLK) CEO Larry Fink urged other heads of companies to prepare for and participate in the green transition as part of a broader defense of stakeholder capitalism.

“I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime,” Fink wrote. “It will also leave behind the companies that don’t adapt, regardless of what industry they are in.”

The CEO of the world’s largest asset manager framed the situation as a money-making opportunity: Companies who want to secure returns for decades to come would be wise to heed the call for decarbonization, he stressed, especially as shareholders, regulators, customers, employees, and others are increasingly pushing for climate action in the private sector as well as the public sector to mitigate effects of a warming planet.

“Few things will impact capital allocation decisions — and thereby the long-term value of your company — more than how effectively you navigate the global energy transition in the years ahead,” Fink stated.

Laurence D. Fink, Chairman and Chief Executive Officer of BlackRock, attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 25, 2018. REUTERS/Denis Balibouse

Laurence D. Fink, Chairman and Chief Executive Officer of BlackRock, attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 25, 2018. REUTERS/Denis Balibouse

Fink’s comments on the investment opportunity amid this shift echoed congressional testimony from Treasury Secretary Janet Yellen in October 2021.

“There is enormous interest in the financial community in making investments that will be profitable in sustainable investments,” Yellen said, “and what we want to do, and we’re working through [the government’s Financial Stability Oversight Council] to do this, is to make sure that investors have the kind of information that will enable them to make investment decisions that they want to make that are profitable.”

In the letter to CEOs, Fink stressed that BlackRock focuses on sustainability “not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”

Total assets under management at BlackRock surpassed $10 trillion in the fourth quarter. Fink’s letter pointed out the “tectonic shift” in capital allocation toward sustainable assets.

As of Sept. 30, 2021, BlackRock managed $509 billion in sustainable investments. At the same time, the company continues to invest in new fossil fuel production — the leading cause of global warming.

‘Shades of brown to shades of green’ 

Two notable moves in the past year exemplify BlackRock’s ambivalence toward the role of oil and gas in the green energy transition. 

In June, BlackRock backed a winning campaign by activist investor Engine No. 1 to install three directors on Exxon Mobil (XOM)’s board to agitate for environmentally-minded changes. In December, the company took a $15.5 billion stake in natural gas pipelines in Saudi Arabia.

“Divesting from entire sectors — or simply passing carbon-intensive assets from public markets to private markets — will not get the world to net zero,” Fink wrote. “And BlackRock does not pursue divestment from oil and gas companies as a policy.”

Divestment, or the practice of refusing to own investments in certain companies or sectors, has become a global movement to limit the expansion of new fossil fuel production since nearly all coal reserves, as well as a majority of oil and gas reserves, must remain in the ground to keep global temperatures within a safe range.

Around 1,500 institutions have committed to divesting nearly $40 trillion from fossil fuels. Notable institutions that have announced plans for fossil fuel divestment include Harvard University, the Ford Foundation, New York City’s public pension fund, as well as that of the state of Maine.

COP26 President Alok Sharma adjusts his mask during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain November 13, 2021. REUTERS/Dylan Martinez

COP26 President Alok Sharma adjusts his mask during the UN Climate Change Conference (COP26) in Glasgow, Scotland, Britain November 13, 2021. REUTERS/Dylan Martinez

According to BlackRock research unearthed by a DivestNY member, divested funds did not experience negative financial impacts. Nevertheless, the company is taking a more gradual approach.

“Because the global economy today is itself carbon intensive, the portfolios of most diversified investors — including the portfolios of BlackRock’s clients in aggregate — remain carbon intensive,” BlackRock’s Global Executive Committee stated in a previous letter to clients. “That cannot and will not change overnight, and BlackRock’s aggregate portfolio will necessarily be subject to the investment decisions of our clients.” 

In his letter, Fink noted that global decarbonization “is already uneven with different parts of the global economy moving at different speeds. It will not happen overnight. We need to pass through shades of brown to shades of green.”

According to data from As You Sow, 7.23% of BlackRock’s assets have long-term exposure to fossil fuel stocks, totaling $148.26 billion across 329 funds. BlackRock also has 2.71% ($55.65 billion) of fund assets invested in carbon reserves, 1.26% ($25.75 billion) invested in coal industry, and 4.28% ($87.83 billion) invested in oil and gas.

Participant seen holding an anti-coal sign at a climate protest outside of BlackRock HQ.

Climate activists with Stop the Money Pipeline held a rally in midtown Manhattan outside BlackRock’s HQ, in New York, on May 25, 2021. (Photo by Erik McGregor/LightRocket via Getty Images)

The company offers 64 funds that received an “A” rating, meaning they have no fossil fuel exposure.

There is ambivalence here as well: The concept of ESG-focused investments was called into question by Tariq Fancy, the former head of sustainable investing at BlackRock, who now runs an education technology nonprofit, in early 2021.

“While leading the charge to incorporate environmental, social and governance considerations into all of our $8.7 trillion of investment activities at BlackRock, I started realizing that there’s not a lot of value at all in this data,” Fancy said in an interview published by GreenBiz in April 2021. “Worse, I also started to realize that all the stuff on ‘stakeholder’ capitalism was hollow marketing — it seemed almost intended to dupe the public into believing that we don’t need the overdue government regulation that we need immediately to address the climate crisis.”

Fink also stressed the need for governments to step up.

“Capitalism has the power to shape society and act as a powerful catalyst for change,” Fink stated in his letter to CEOs. “But businesses can’t do this alone, and they cannot be the climate police. That will not be a good outcome for society. We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets. They must also support communities affected by the transition, help catalyze capital for the emerging markets, and invest in the innovation and technology that will be essential to decarbonizing the global economy.”

14 moonshot technologies for the future. (Source: BofA Global Research)

14 moonshot technologies for the future. (Source: BofA Global Research)

If all goes well, Fink noted, companies could create shareholder value by developing novel technologies for lowering emissions — in other words, making money while also saving the world.

“The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers,” Fink wrote. “And it’s not just startups that can and will disrupt industries. Bold incumbents can and must do it too. Indeed, many incumbents have an advantage in capital, market knowledge, and technical expertise on the global scale required for the disruption ahead.”

Grace is an assistant editor for Yahoo Finance.

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