Money Management

Blackrock Investment Guru Shatters the Myth of ESG Investing

In recent months, one of Wall Street’s most influential investors has been pushing hard for ESG and the clean energy transition. Back in January, BlackRock Inc. (NYSE: BLK), the world’s largest asset manager with $ 9 trillion in assets under management (AUM), has revealed plans to pressure companies to do much more to reduce their carbon emissions by leveraging its massive asset base.

A few months ago, BlackRock CEO Larry Fink called for business climate information while proclaiming that companies must have a goal beyond profit.

In fact, BlackRock says it plans to stop investing in the worst offenders of greenhouse gas emissions.

But now a former big boss at BlackRock is arguing the exact opposite: Green investing is doing little to stop climate change.

Tariq Fancy, former investment manager for sustainable investing at BlackRock, says greenhouse investment is doomed to massive failure because the entire energy investment system is simply designed for profit.

Primed for Profits

Fancy argues that in many cases, it’s actually cheaper and easier for a business to market itself as green rather than doing the long-term job of real sustainability. Not only is it expensive, but it also incurs no penalties from the government in the form of a carbon tax.

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Fancy, who currently runs the digital learning association Rumie in Toronto, says BlackRock’s decision is fundamentally flawed because the climate crisis cannot be resolved through free markets ”because the system is designed to extract profits.

Fancy argues that investors have a fiduciary duty to maximize returns for their clients, which essentially means they will continue to invest in businesses that contribute to global warming (read: oil and gas) as long as returns are more favorable there. .

Even oil and gas divestments are doomed to failure.

According to Fantaisie:

“If you sell your shares in a company with a high carbon footprint, it doesn’t matter. The business still exists, the only difference is you don’t own them. The company will continue as before and there are 20 hedge funds that will buy these shares overnight. The market is the market. ”

Fancy is not the only one from this point of view.

No energy restriction

In February, analysts at Bloomberg Intelligence (BI) released a research note on the banking industry aptly titled “What energy restrictions?” The research notes that JPMorgan has provided nearly $ 250 billion in loans and bonds to fossil fuel companies since the Paris Agreement was ratified in December 2015, nearly 30% more than its closest rival. Wells fargo (NYSE: WFC), which provided $ 193 billion over the period.

Collectively, the six biggest banks on Wall Street have provided nearly $ 900 billion in loans and bonds to the oil and gas industry in the past five years alone.

Fossil fuel apologists argue that JPM’s sheer size and the fact that he has his fingers in so many pies make it nearly impossible to avoid getting involved in non-climate-friendly companies.

In its defense, JPM has recently become more proactive than ever in the fight against climate change.

JPM [belatedly] debuts in the green bond market in September 2020, by selling $ 1 billion in green bonds with a four-year maturity. Green bonds are fixed income instruments specifically intended to finance environmentally friendly projects.

However, that was only a fraction of the more than $ 300 billion in green bonds sold last year.

After a lull in the first half of the year due to the pandemic, green bond issuance reached $ 62 billion in September and maintained high volume through the end of the year. Last year saw a total of 305.3 billion dollars of green bonds issued, 13% above 2019 levels, bringing the cumulative levels since 2007 to $ 1,000 billion.

JPM’s climate commitments are also pale compared to what its peers are doing.

In 2019, Goldman Sachs (NYSE: GS) became the first major U.S. bank to exclude funding new oil exploration or Arctic drilling, as well as new thermal coal mines all over the world before the rest of the horde joined the bandwagon. In his environmental policy, GS has declared climate change to be one of the “greatest environmental challenges of the 21st century” and is committed to helping clients manage climate impacts more effectively, including through the sale of disaster bonds meteorological. The giant bank has also pledged to invest $ 750 billion over the next decade in areas focused on climate transition. Related: The Future of US LNG is at stake

In October, Morgan reiterated its commitment to achieve operational carbon neutrality by aligning with the goals of the Paris Agreement. The bank said it would set interim emissions targets for 2030 for its financing portfolio with a strong focus on the oil and gas, power and automotive, and manufacturing sectors. , and that it will define and continue to support “market-based policy solutions” such as putting a price on carbon.

Not my money

But as Fancy has observed, giant Wall Street investment firms such as BlackRock, JPM and fund managers are struggling to divest themselves of oil and gas.

Critics have in the past pointed out that BlackRock has not moved fast enough to meet its climate commitments and have pointed to the $ 85 billion in coal-related assets, not to mention the large holdings in major oil and gas producers such as Royal Dutch Shell (NYSE: RDS.A) BP Plc. (NYSE: BP), and ExxonMobil (NYSE: XOM).

“BlackRock remains at the size of fossil fuel investments and the world’s leading funder for companies destroying the Amazon rainforest and ignoring the rights of indigenous peoples,” environmental group Extinction Rebellion piked.

BlackRock’s defense has been: ”It’s not my money.

It turns out that a large chunk of BlackRock’s fossil fuel companies are held in passive index funds, which means it can’t directly divest itself.

BlackRock, however, says he’s working behind the scenes with coal companies, urging them to embrace cleaner technologies. CEO Fink acknowledges that financial markets have been slow to reflect the threat posed by climate change, but pledged that:

“In the near future, and sooner than expected, there will be a significant reallocation of capital. “

But BlackRock seems to have the right priorities.

Some fund managers have defended their decision to continue buying oil and gas stocks by saying the divestments do not cause those companies to change.

According to Mark Regier, Vice President of Management at Praxis Mutual Funds:

“There is a fundamental mythology in the divestment movement that when you divest yourself, you are fundamentally hurting that business, and that’s just not how the markets work. When we sell, someone else is buying. ”

Chris Meyer, responsible for responsible investing research and advocacy at Praxis, says that by selling oil and gas stocks, investors miss the opportunity to advocate for change and also fail to support them. companies that fuel a transition to green energy.

Praxis owns shares or green bonds of companies such as The Southern Company (NYSE: SO), ConocoPhillips (NYSE: COP) and NiSource Inc. (NYSE: NI).

Praxis cites its decision to stick to NiSource Inc. (NYSE: NI), an energy holding company that operates as a regulated natural gas and electricity utility, as a classic example of what can happen when [large] investors are arguing for change. Praxis says he started engaging with NiSource in 2017 and was successful in convincing the utility to commit to completely phasing out coal by 2028 to be fully replaced by wind and solar power generation. If successful, this scale of renewable investments will reduce Indiana’s overall greenhouse gas emissions by 90%, according to Meyer.

Climate advocacy can certainly work, but claiming it’s the best way to solve the climate crisis is questionable wisdom at best and downright fallacious at worst.

By Alex Kimani for Oil Octobers

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