BlackRock has lost more than US$90 billion ($133bn) by investing in fossil fuel-dependent companies over the last decade, a new report criticising the world’s largest fund manager about its failure to manage climate risk shows.
The Institute for Energy Economics and Financial Analysis (IEEFA) delivered a scathing report on the US$6.5 trillion fund manager, calling out its “broad statements” on sustainable investing that have yet to be integrated into its passive index products, active trading regimes or shareholder engagement programs.
Investors as a result have seen US$90 billion of value wiped from portfolios, three quarters of which came from holdings in ExxonMobil, Chevron, Royal Dutch Shell and BP.
IEEFA highlighted BlackRock’s position in General Electric, which in 2015 doubled down on thermal power by acquiring Alstom and Baker Hughes, has seen its market cap decline by US$150 billion. That investment led to a US$19 billion loss for BlackRock over three years.
In 2011, BlackRock was the top shareholder in Peabody Energy, a coal mining company with operations in the US and Australia, with two million shares equating to an 11% stake in common shares, the report reads.
When Peabody’s share price fell 95% between January 2011 and July 2015, IEEFA calculated BlackRock’s loss amounted to US$2.3 billion.
BlackRock responded, stating that the large majority of its equity holdings – including those cited in this report – are held through index-based ETFs and other index products, which track the investment results of third-party indices.
“Index managers such as BlackRock seek to replicate the performance of the index and do not select or exclude one company over the other based on our views of a company. Index providers determine which companies to include in the indices they create based on the index methodology. The conclusions of this report are thus misplaced,” BlackRock said.
Of its global US$6.5 trillion in assets under management, about 26.5% is allocated to active strategies and 66.5% is in passive investments.
“We offer clients various product choices, including portfolios with a focus on ESG factors. These portfolios are among our fastest growing which reflects clients choosing to move in that direction,” BlackRock said.
Walking the talk
Despite public announcements highlighting its commitment to sustainable investments, IEEFA noted only 0.8% of BlackRock’s total portfolio is invested in ESG-oriented funds.
While BlackRock maintains it has little control over its US$4.3 trillion passively managed portfolio, IEEFA pointed out that its peers like Amundi and Norges Bank have developed low-carbon investing strategies that provide comparable risk-adjusted returns in a cost-effective sustainable way.
BlackRock said it manages over US$500 billion of assets using exclusionary screened products. About US$60 billion is in ESG, thematic and impact solutions.
“These solutions include US$32 billon AUM in products – ranging from green bonds, to ETFs and mutual funds, to infrastructure funds – that provide clients with innovative options to participate in and benefit from the transition to a lower carbon economy,” it said.
IEEFA also put the spotlight on the board – six out of 18 board members have worked in companies with strong ties to the fossil fuel sector.
“Furthermore, while BlackRock’s governance team advocates for a separation of the chair and chief executive officer positions at its portfolio companies, Larry Fink still holds both roles in the firm,” the report states.
The IEEFA criticised Fink’s annual letter to chief executives, stating that climate risk was barely mentioned.
As the world’s leading passive investor, BlackRock’s “inaction on climate change is financially perilous,” it said.
“BlackRock must invite greater investee board and public engagement scrutiny, implement climate disclosure across its entire US$6.5 trillion portfolio, and use its advantaged position to influence investor choices.”
Extracted from Financial Standards