BlackRock, the world’s largest fund manager with $6.5 trillion of assets under management, bigger in value than the third largest economy in the world, continues to ignore the serious financial risks of putting money into fossil fuel dependent companies, a new report found on Thursday.
The report, produced by the Institute for Energy Economics and Financial Analysis (IEEFA), places a price tag on BlackRock’s fossil-fuel heavy strategy, saying the firm’s refusal to address risk has lost investors over $90 billion in value destruction and opportunity cost from just a select few holdings over the past decade.
Entitled “Inaction is BlackRock’s biggest risk during the energy transition: Still lagging in sustainable investing leadership”, the report exposes the global company as failing in value creation for investors and as a laggard on all fronts in sustainable finance.
Out of BlackRock’s $90 billion in estimated losses, 75 per cent are due to its investments in four companies alone, ExxonMobil, Chevron, Royal Dutch Shell and BP, which have all underperformed the market in the past decade.
The report says BlackRock maintains that it has little control over its $4.3 trillion passively managed portfolio.
Yet leading peers such as Amundi, Norges Bank, AP4, Storebrand and KLP have all developed low carbon investing strategies that provide at least comparable risk-adjusted returns in a cost-effective sustainable way, as expected of leading asset managers providing leadership and creating suitable, risk-protected products.
BlackRock’s Board of Directors is beset with conflicts of interest, with six out of 18 board members having 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, said the IEEFA.
Tim Buckley, IEEFA Director of Energy Finance Studies and co-author of the report, said due to its enormous size, BlackRock should demonstrate stronger leadership.
“As the world’s largest universal owner, BlackRock wields an enormous amount of influence and shoulders a huge responsibility to the wider community,” Buckley said in a statement.
“It has the power to lead globally to address climate risk, yet to date it remains a laggard.”
BlackRock continues to sink investor funds into fossil fuel holdings in stark contrast to recent moves by the trillion-dollar Norwegian government-owned sovereign wealth fund which announced its divestment from oil and gas – other major funds have also shown leadership.
“If the world’s largest investor makes it clear the rules have changed, then other globally significant investors like Fidelity, Vanguard and Japan’s sovereign wealth fund will rapidly replicate and reinforce these moves, reducing stranded asset risks for all,” said Buckley.
The report finds BlackRock lost its investors over $2bn as Peabody Energy went bankrupt, then doubled down on Cloud Peak Energy as it went into bankruptcy three years later.
And BlackRock lost its investors $19bn on General Electric.
Tom Sanzillo, IEEFA co-author of the report and former First Deputy Comptroller of New York State, said: “BlackRock is both behind the curve on coal and in reading the energy transition. How many more examples of value destruction will it take, how many more years of fossil fuel companies lagging the world markets will it take before BlackRock leads?”
IEEFA’s analysis shows how BlackRock fails to systematically protect its investors from key long-term investment risks.