T though he likes to thousands of people Write CEO Immediately, Larry Fink has to back off these days when one lands on his own doorstep. The boss of BlackRock, once lauded for “democratizing” access to investments, has received scathing letters from both Republicans and Democrats in recent months. On Aug. 4, “Dear Mr. Funk” from the 19 GOP
State Attorney General began accusing BlackRock of invading the Short selling clients on climate change. “Dear Mr. Fink,” began another essay on Sept. 21, when the progressive chief of the New York City comptroller’s office told BlackRock it was defrauding investors and the planet by “backtracking” its climate commitments. These charges are mirror images of each other, making them both harder to deal with. BlackRock could not appease one set of government clients without disturbing another. Listen to this story.
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Who would have thought that something this innocuous – sounds like index investing could be a source of controversy when Mr. Fink built a business based on computing power, low fees and economies of scale over 35 years ? BlackRock, based in Midtown Manhattan, avoids the glitz of Wall Street. Mr. Fink, the son of a shoe store owner, shares the Democratic middle-class skepticism of quick success. Known for maxims like “climate risk is investment risk,” his letter advocates for a friendlier, gentler version of free-market enterprise, but is by no means anti-capitalist. Tall, bespectacled, and well-dressed, he’s an unlikely punching bag. Two things make BlackRock a black. The first is size. Last year, the Financial Times called Mr Fink a “ten trillion-dollar people,” based on the value of assets managed by BlackRock. Since then, its portfolio has slumped to about $8.5 trillion as markets tumbled. But it remains the world’s largest asset manager, investing in nearly all of the most important U.S. companies on behalf of its clients and selling exchange-traded funds around the world. The second development is the American culture war against awakening. BlackRock is a leading seller of investment products that consider environmental, social and governance (ESG None of this is to be taken lightly. BlackRock and other index fund providers have been facing allegations for some time that their stakes in competing companies in the same industry pose competition concerns. They successfully fended off the onslaught, arguing that their stakes were too small, their influence too diffuse to be effective, and that they were in any case passive asset owners with no intention of interfering in company management. For a while, the size defense looked shaky: Last year, BlackRock and two other giants, Vanguard and State Street, combined held s average companies of 22 % of shares)&p
of the US Large Companies 500 Index, up from 13.5% in 2008. Now all the esg talk sounds as though BlackRock isn’t so passive after all. In their letter, the attorneys general formally charged BlackRock and others with seeking to “impose” a net-zero goal on the company to raise antitrust concerns. BlackRock insisted it would not coordinate votes or dictate a decarbonization agenda on such issues. But the ghost of Teddy Roosevelt is back.
Will such controversy jeopardize BlackRock’s business model? unnecessary. Mr Funk has an instinct for safety in the middle ground. He may be painted as a climate reformer, but in reality, BlackRock has rarely pushed the climate agenda beyond what its institutional clients are comfortable with. (It shuns more influential policies, such as dissuading companies from lobbying against environmental regulations.) He may seem like he’s wielding a big stick; Radical movement has gained widespread attention. This year, though, he’s waving a branch. BlackRock supports 24% of shareholder resolutions on environmental and social issues, down from 43% last year. Mr Fink’s new slogan, no doubt aimed at the Republican backlash, is that he doesn’t want to be a climate policeman.
Also, BlackRock may be able to sidestep controversy soon. Around the world, standard-setters are creating rules to harmonize how companies disclose climate information. These include the U.S. market regulator, the Securities and Exchange Commission (SEC
). While Republicans, as well as conservative judges, may try to limit SEC efforts to mandate emissions disclosures, the direction is clear. BlackRock would not need to act as an unofficial regulator if the real regulator was doing its job.
Another way out of the culture wars is innovation. Mr Fink’s shrewdest attempt to rid politicians of him is to double down on shareholder democracy. In January, BlackRock expanded opportunities for people who own nearly half of its $4.9 billion index fund to vote for their shares. If they do, it cannot be accused of using their votes to further Mr Fink’s personal interests. This would help pass the proposed Investor Democracy (index, geddit?) bill, which aims to force the giants to let investors decide how to vote.
blacklist
BlackRock still has culture wars to fight. It’s certainly maddening that it’s the only major US asset manager threatened with divestment from a Texas pension fund for allegedly “boycotting” a fossil fuel company. It notes that it is one of the world’s largest investors in fossil fuels. It has to convince other Republican states not to use this as a precedent.
Nonetheless, the company continued to attract net inflows even amid political turmoil, partly due to its ESG business. Only when mainstream investors start to see through empty promises of unweightedESG
does Mr Fink really need to worry.
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This article appeared in the business section of the print edition, Titled “BlackRock and Dilemma”
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