Larry had a momentous week on climate but is Blackrock Still Part of the #Missing60?

| 20 January 2020
Archive, Blog & Articles, Must reads

For those who say campaigning doesn’t work, just read Larry Fink’s 2020 letter to CEOs and its sister letter to clients, both coming hot on the heels of Blackrock’s decision to join Climate Action 100+. Without a doubt, Blackrock’s decision to speak up on climate helps raise the bar within the fund management industry, not least by exposing competitors like Vanguard and Fidelity who are even further behind.

But this is overdue and raises questions about what’s changed exactly. The company joined Ceres’ Investor Network on Climate Risk in 2008. Yet eight years later, Preventable Surprises had to highlight that Blackrock, along with other large US institutional investors, was supporting management at Chevron and Exxon against very mild resolutions calling for scenario analysis. Our #Missing60 campaign brought global attention to the gap between walk (stewardship) and talk (climate). We called on these managers, together with their clients, to explain how their votes comported with fiduciary responsibility in a warming world. It’s taken the work of many groups – Walden Asset Management, ShareAction and the Sunrise project come instantly to mind – and many clients to trigger this change. But it is now 2020 and humanity has lost another four years in the battle against climate change.

The decision to divest thermal coal is insufficient. While some campaigners are understandably celebrating the publicity, the Blackrock announcement is not an obvious game changer. According to Bloomberg Quint, the 25% revenue threshold means Blackrock will remain invested in several large, diversified miners, including Anglo American, BHP and Glencore. These are critically important players: Glencore, for example, is the single biggest coal shipper and Blackrock owns 6% of the company. Is Blackrock, like Goldman Sachs, simply reacting – belatedly – to the fact that thermal coal mining firms are well on track to becoming stranded assets?

ESG products will not avert the climate crisis per se. Promising a slate of ESG products and full ESG integration by the end of 2020 sounds great. But as we said in a recent Responsible-Investor Op-Ed, ESG integration is often a black box with little reporting of real world outcomes. Does having more ESG products help manage systemic risks or even deliver Paris agreement? No. Making money from and asset gathering on the back of climate change is not the same as averting the climate crisis.

Watch the vote. While Blackrock has signaled an increased disposition to vote against management and board directors when companies do not make sufficient progress on disclosure and strategy, it remains far from clear what its minimum expectations will be. Will it vote against management when the company refuses to produce a transition plan as the Children’s Investment Fund has indicated it will? Climate aware clients and concerned stakeholders should keep their eyes wide open and make clear they expect radically improved voting behavior.

Blackrock needs to be a constructive influence on the CA100+ coalition. With the announcement, much attention has rightly focused on Blackrock but perhaps just as important is what this means for other members of CA100+. FollowThis, we and others have argued that CA100+ members should demand that Scope 3 emissions are included in the corporate disclosures and business plans. Alongside ACCR and InfluenceMap we have similarly argued that investors should demand much greater transparency about and accountability for corporate capture of (climate) politics. If Blackrock is unwilling to step up to these challenges, will other CA100+ members take action or will they adopt lowest common denominator standards?

Climate needs public policy. If climate is reshaping markets, what can markets do for climate? Blackrock’s view on climate public policy needs to be more forceful and more consistent. It needs to be a leading voice on carbon tax. Why did it shy away from the joint investor statement released just two months ago at COP25? Why did it not support the joint investor statement  on deforestation in the Amazon?

Climate needs a societal strategy. For the focus on the climate emergency to be effective, Blackrock will also need to address other key components of the global systemic risk agenda. That includes biodiversity loss but also income inequalities or corporate capture of politics. If there is a shared lesson from recent elections in the US, Brazil, or from the massive protests in France, it’s that the climate crisis cannot be addressed without broad public support, and public support progress on these related fronts.

When the PR dust settles, civil society will still need BlackRock to make clear its real intentions. Despite huge resources, it has been too slow to act. We hope and expect that Blackrock – and its peers – will now embrace the urgency that procrastination has helped create.