The Epoch Times: Corporations Are Losing the ESG Battle, Forcing Them to Hide Advocacy

By Kevin Stocklin March 08, 2024 Updated: March 12, 2024

Wall Street titans appear to be having an increasingly hard time reconciling the conflicting goals of progressive activism and shareholder returns.

Until recently, many banks, asset managers, and insurers portrayed these goals as complementary, asserting that climate risk is financial risk and that the competence of management can be assessed by its commitment to social justice goals.

Today, however, those narratives are rarely heard.

BlackRock, JPMorgan Chase, and State Street recently exited from Climate Action 100+, a coalition of the world’s largest fund managers that pledges to “ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.”

On the heels of that exit, 16 conservative state attorneys general have demanded answers from BlackRock’s directors regarding the firm’s continued membership in other similar groups, which they assert could be a conflict of interest with its fiduciary responsibility to investors.

“We applaud BlackRock’s reevaluation of its status [with Climate Action 100+],” the attorneys general wrote in a Feb. 27 letter to BlackRock’s directors, “but we also note that BlackRock remains a member of other groups such the Net Zero Asset Managers initiative (‘NZAM’), the United Nations Principles for Responsible Investment (‘UNPRI’), and Ceres.”

Republican state officials praised a recent trend of banks’, fund managers’, and insurance companies’ departures from climate clubs. However, they question whether the Wall Street firms are actually changing direction or simply changing optics.

“I’m afraid nothing has really changed other than the public’s stance,” Montana Attorney General Austin Knudsen told The Epoch Times.

“But what really concerns me is that, if what these groups and these asset managers were doing was so righteous, why are they running from it now?”

Mr. Knudsen led the efforts to draft the letter to BlackRock directors.

Attorneys general from Alabama, Arkansas, Georgia, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, South Carolina, South Dakota, Texas, Utah, Virginia, and West Virginia also signed the letter.

Power in Hands of a Few

At the center of the controversy is that so many corporate shares are owned by a relatively small number of financial firms.

According to a 2019 study in the Harvard Business Review, institutional investors—asset managers, insurance companies, banks, and state pension funds—owned 80 percent of the shares in the S&P 500 index of the United States’ largest companies.

“One of either BlackRock, Vanguard, or State Street is the largest shareholder in 88 percent of S&P 500 companies [and] they are the three largest owners of most DOW 30 companies,” the report states.

This concentration of power has raised concerns, particularly when the firms pledge to work in unison to target fossil fuel companies.

Critics argue that the issue is not only how institutional fund managers invest clients’ money, but also how they vote the corporate shares that they own on their clients’ behalf.

Climate Action 100+ has boasted of having a 75 percent success rate in compelling target companies to get on board with the net-zero agenda.

Although many financial firms have also been pursuing climate and social-justice goals and are also members in climate-activist alliances, BlackRock has been a lightning rod for criticism on this issue, largely because of its size and outspoken support for those goals.

BlackRock is the world’s largest asset management company, with about $10 trillion in assets under management.

“They’re involved in a lot of pension systems, and a lot of state investment systems, and I think they’re getting the most attention because they’ve got the most assets,” Mr. Knudsen said. “But I think other similar groups should take notice of this, and we’re hoping they do.”

BlackRock said it’s in the process of reviewing the letter from the attorneys general but disputes the allegations of conflicts of interest.

“BlackRock and its funds’ Boards of Trustees act in full accordance with their fiduciary obligations and in the best interests of all fund shareholders,” Christopher van Es, director of corporate communications at BlackRock, told The Epoch Times.

BlackRock has also refuted the charge that it has disinvested from the oil and gas industry.

In December 2022, Dalia Blass, BlackRock’s head of external affairs, testified before the Texas state Senate, “We participate in Climate Action 100 to engage in dialogue with other participants, market participants, [and] governments so that we understand issues that are relevant to our clients.” Ms. Blass denied that BlackRock pressured companies to go along with the alliance’s climate agenda.

Texas state Sen. Bryan Hughes, a Republican, 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.’”

Texas state Sen. Lois Kolkhorst told BlackRock at the hearing that she prefers Texas not to do business with the firm because it and the Lone Star state have “different goals.”

“Maybe you can’t serve two masters,” she said.

Activism Can Also Be Risky

In his 2022 letter to CEOs, BlackRock CEO Larry Fink wrote that “stakeholder capitalism” had replaced shareholder capitalism as the guiding principle, and that “most stakeholders—from shareholders to employees, to customers, to communities, and regulators—now expect companies to play a role in decarbonizing the global economy.” “Every company and every industry will be transformed by the transition to a net zero world,” he stated. “The question is, will you lead, or will you be led?”

In 2020, under pressure from climate activists, Mr. Fink pledged that his firm’s actively managed funds would divest from any company that earns more than 25 percent of its revenue from coal.

Four years later, while climate risk was once portrayed as financial risk, climate activism is now seen to have its own set of risks.

In its latest SEC 10-K filing, BlackRock stated that its support for the environmental, social, and governance (ESG) movement was a material risk factor for its shareholders. Some conservative states have boycotted BlackRock for alleged harm to oil, gas, and coal companies while left-leaning states have pressured BlackRock to be even more activist.

In December 2023, Tennessee Attorney General Jonathan Skrmetti brought a consumer-protection lawsuit against BlackRock, charging that the company “has been on the forefront of using aggressive strategies to push controversial environmental, social, and governance” goals and failed to properly inform investors about its actions.

The possibility of antitrust actions against climate alliance members has also been raised because of their coordinated targeting of other companies and industries.

“If BlackRock is not able to successfully manage ESG-related expectations across varied stakeholder interests, it may adversely affect BlackRock’s reputation, ability to attract and retain clients, employees, shareholders, and business partners or result in litigation, legal or governmental action, which may cause its AUM [assets under management], revenue, and earnings to decline,” the filing states.

“Any perceived or actual action or lack thereof, or perceived lack of transparency, by BlackRock on matters subject to scrutiny, such as ESG, may be viewed differently by various stakeholders and adversely impact BlackRock’s reputation and business, including through redemptions or terminations by clients, and legal and governmental action and scrutiny.”

Many other companies, including Target, Anheuser-Busch, and Disney, are now facing a backlash and underperforming share prices from taking on controversial political causes.

Like BlackRock, Disney stated in its recent SEC filing, “Consumers’ perceptions ... of our environmental and social goals often differ widely and present risks to our reputation and brands.”

Caught in the Middle

Having cast their lots with progressive causes, however, many firms now find it difficult to extricate themselves. After BlackRock, JPMorgan, and State Street dropped out of the Climate Action 100+ group, New York City Comptroller Brad Lander lambasted the firms.

“By caving into the demands of right-wing politicians funded by the fossil fuel industry and backing out of their commitment to Climate Action 100+, these enormous financial institutions are failing in their fiduciary duty and putting trillions of dollars of their clients’ assets at risk,” Mr. Lander stated.

“Three years ago, Larry Fink declared that climate risk is financial risk, but today’s announcement makes a mockery of that recognition.

“Putting clients who take climate risk seriously in their own small silo, while voting most of BlackRock’s shares against even the most minimal climate disclosures, is a failure of both leadership and fiduciary duty.”

Mr. Lander, who has discretion over where the city’s pension money is invested, threatened the financial giants with disinvestment.

“We are in the process of reviewing how well our managers are aligned in that approach and will consider our options for the management of our public market investments,” he stated.

State attorneys general noted that conflict in their recent letter, stating that “BlackRock may also be unduly influenced by large public pension funds that wish to use their capital for political purposes rather than maximizing financial return.”

Mr. Knudsen said attorneys general have been seeking answers regarding where BlackRock stands on climate and social justice issues and how that affects its actions as a fund manager and shareholder, but so far he said they have received conflicting statements and “non-responses.”

“You’re saying one thing in public and you’re saying another thing in your disclosure statements,” he said.

“You’ve got affiliations with known radical groups—the U.N. Principles for Responsible Investment, Ceres, Net Zero Asset Managers—but then you say to your investors, ‘Well, we’re not going to be focused on that.’”

Mr. Knudsen and his fellow attorneys general are requesting written responses to their questions by March 26.