BlackRock Is Still Getting Red-State Pushback on ESG Investments

To some investors, climate action does not equal good business.

Investment firm BlackRock is still getting grief from conservative investing funds, which have so far withdrawn nearly $13.5 billion from its environmental, social, and governance funds, the Financial Times reported. The good news is that it only amounts to about one-tenth of one percent of its $10 trillion in assets under management.

What’s on the Agenda?

To many Republican state investment funds and lawmakers, ESG investing is the equivalent of a “politically motivated money pit.” The anti-ESG movement kicked off in 2020 when two conservative groups — Consumers’ Research and the State Financial Officers Foundation — ramped up their efforts to get red-state treasuries to withdraw government pensions from firms that focus on sustainable initiatives, per The New York Times. That made BlackRock, the world’s largest asset manager, the biggest target in their sights.

States including Florida, Missouri, West Virginia, and others have divested billions from BlackRock for its alleged boycott of the fossil fuels industry, an accusation BlackRock CEO Larry Fink has denied. And, in a combination of business strategy and appeasement, BlackRock has walked back some of its commitments to Climate Action 100+, an initiative that encourages highly polluting companies like airlines and energy businesses to reduce their carbon footprints.

However, that hasn’t curbed conservatives’ efforts to take their pension money elsewhere:

• Just last week, the Texas Permanent School Fund announced it would pull $8.5 billion from BlackRock, the largest divestment yet by a Republican-led pension fund. BlackRock called the move “reckless” and “irresponsible” and said it was based on “short-term politics.”
• The divestment morality can get a little hazy, though. North Carolina Treasurer Dale Folwell has bashed BlackRock and even called for Fink’s firing, but the state still has roughly $18.5 billion in assets under BlackRock management. Folwell has said he’s sticking with BlackRock because he can’t find a cheaper manager.

Is ESG a Bad Investment Strategy? There is some recent evidence to suggest that anti-ESG sentiment isn’t as widespread as it looks. While investors pulled $13 billion from US sustainable funds, much of that came from BlackRock’s iShares ESG Aware ETF. And plenty of investors still believe in ESG. In its recent “Sustainable Signals” report, Morgan Stanley said 77% of individual investors worldwide say they are interested in investing in funds related to climate and also believe they’ll perform well. About 55% said they anticipate boosting their allocations to sustainable funds.