(Bloomberg) — It’s been a tough couple weeks for BlackRock Inc., the world’s largest money manager, which endured fresh blows from Republican officials sharply critical of ESG.
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On Wednesday, Texas said one of its Senate committees had issued a subpoena requesting documents about BlackRock’s environmental, social and governance practices, and asked for at least one of six executives, including Chief Executive Officer Larry Fink, to attend a Dec. 15 hearing. On the same day, Vanguard Group Inc., one of BlackRock’s main rivals, withdrew from the world’s largest climate-finance coalition, creating a potential selling point to anti-ESG clients. Florida said last week it would pull about $2 billion from BlackRock because of its ESG investments and Governor Ron DeSantis’s administration is urging the manager of its pension to remove BlackRock as an asset manager.
The battle over sustainable investing comes as the 10 largest ESG funds by assets have posted double-digit losses this year, some even more than the S&P 500’s 17.5% decline. BlackRock’s $20 billion iShares ESG Aware MSCI USA exchange-traded fund is down about 19% and Vanguard Group’s $5.8 billion ESG US Stock ETF has dropped 22%. Meanwhile, stocks of US oil giants Exxon Mobil Corp. and Chevron Corp. have soared 69.8% and 44.2% respectively.
While the financial impact will likely be muted for BlackRock, which is in charge of almost $8 trillion, the asset manager has been tangled in the messy debate on whether sustainable investing comes at the expense of investor returns, and could inflict reputational damage, according to Morris DeFeo, partner and chair of the corporate department at the law firm Herrick, Feinstein LLP.
“If you are a fund manager — it’s not so much the dollars that are being pulled out, it’s the dialog that’s going on,” DeFeo said. “If they are hearing from a number of different investors that are saying ‘I’m not happy with the direction you are heading, I don’t see it helping my portfolio, in fact I think it might be hurting my portfolio and I don’t want you thinking for me’ — if they’re getting a lot of pushback from investors, they are going to take that into consideration.”
As the world’s largest money manager — with an outspoken CEO who has called for companies to think about more than just profits — BlackRock has been a political target among Republicans. At the same time, the firm has emphasized that it continues to manage fossil fuel investments and doesn’t advocate for such divestment.
A spokesperson at BlackRock wasn’t immediately available for a comment.
Former Vice President Mike Pence said this year that large investment firms are pushing a “radical ESG agenda,” mentioning BlackRock specifically. In all, 19 attorneys general from states largely with GOP-dominated governments, including Arizona, Kentucky and West Virginia, have lashed out at BlackRock for pursuing a “climate agenda,” at odds, they allege, with generating returns for state pensions. Louisiana and Missouri are among states that have also pulled money from the asset manager.
BlackRock, Vanguard, State Street Corp. and Institutional Shareholder Services Inc. will send executives to East Texas next week to appear before state senate committee on policies related to ESG practices. The attendees will be Dalia Blass, BlackRock’s head of external affairs; Lori Heinel, State Street’s global chief investment officer; John Galloway, Vanguard’s global head of investment stewardship and Lorraine Kelly, ISS’s global head of investment stewardship.
The hearing will look into the investment practices of finance firms and how those policies may impact the state’s public pensions, according to the notice for the hearing. Texas Governor Greg Abbott’s administration has been at the forefront of efforts to discourage the spread of ESG investing, which GOP lawmakers are worried could choke off capital for the state’s fossil-fuel industry.
North Carolina Treasurer Dale Folwell called on Friday for Fink to resign because of the CEO’s focus on ESG, according to Pensions & Investments.
On the flip side of that argument, Bluebell Capital Partners, a small activist investor, called on Tuesday to replace Fink, claiming that despite his high-profile role in advocating for ESG investing, he’s undermining BlackRock’s credibility by continuing to invest in fossil fuels including coal.
Market turbulence and a dim economic outlook have helped amplify anti-ESG voices, DeFeo said.
“In an environment where everyone’s portfolio was knocking it out of the park — those voices might get drowned out.”
Read more: Political Right Zeroes In on ESG Investors as New US Enemy No. 1
–With assistance from Saijel Kishan and Amanda Cantrell.
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