ESG Boomerangs on BlackRock
One persistent myth in today’s materialistic society is that money rules everything. Those wishing to understand why people act the way they do are told to “follow the money.” The lust for power and wealth trumps everything.
However, there are more important things than money -- even on Wall Street. Some liberal businessmen and investment management firms often sacrifice profits to promote their leftist ideological causes.
The case of the BlackRock index fund is one example of misplaced ideological motives. The company has used its financial muscle to browbeat others into toeing ecological, social and governance (diversity) lines. However, BlackRock is now getting a taste of its own medicine. It is paying the penalty for insisting that others bow before the gods of “woke” culture.
Introducing the ESG Rating System
BlackRock is a major player in the latest Wall Street craze of using a rating system to decide who receives its massive supply of investment dollars. This new social credit scheme evaluates investment possibilities based on their compliance with environmental, social and governance (ESG) targets. A state (e.g., Utah), county, city, or company with a negative ESG rating can see itself choked off credit or investment capital.
On January 15, 2020, BlackRock founder and CEO Larry Fink sent a letter to CEOs saying that he will use its power to ensure “every government, company, and shareholder must confront climate change.”
The plight of these targeted companies is made worse by investment managers at index funds like BlackRock, who control vast numbers of shares. They can use the ESG ratings against corporate boards by promoting shareholder resolutions to force management to advance liberal social causes, eco-climate standards, and diversity employment goals. ESG eco-activists especially target fossil-fuel companies that are slated ideologically for extinction.
BlackRock is the world’s largest asset manager, with index funds worth $10 trillion. With Vanguard and State Street -- all under “woke” management -- Blackrock has been using its massive financial muscle to steer Wall Street down disastrous ideological paths.
A Boomerang for Blackrock
Wall Street and investors are pushing back.
Analysts are saying that making financial decisions on ideology is a risky affair. It cannot be sustained and left unpunished.
BlackRock’s energetic focus on ESG investing is affecting its bottom line. The index fund’s performance is deteriorating, and risks are accumulating. In the face of this situation, UBS Wealth Management recently downgraded ratings for BlackRock (NYSE: BLK) by now listing it as a “Neutral” recommendation rather than a “Buy.” The bank also cut the target stock price to $585 from $700.
The new recommendations were made based entirely on BlackRock’s reckless ESG positioning. UBS says that stubborn insistence on this course could also trigger increased regulatory inspections and investor withdrawals.
Thus, the company pressuring countless firms to adopt more “woke” positions has suddenly found a boomerang coming in its direction. Investors and analysts are now telling BlackRock that ESG shenanigans are bad business and want it stopped.
Feeling the pressure, BlackRock has posted “clarifications” on its website that seek to dispel the idea that it has boycotted fossil fuel investments entirely by highlighting some special funds that feature them. Nevertheless, the firm continues offering a list of other funds that exclude fossil fuels. It still supports shareholder resolutions that promote the ESG agenda.
Abandoning ESG Efforts
It may be too late for clarification. Business executives are questioning the need for the ESG project that BlackRock pushes so hard. A recent KPMG survey of hundreds of top executives found that they have major reservations about ESG. Some 59% of CEOs admitted they “plan to pause or reconsider their organization’s ESG efforts in the next six months as they adjust their strategy to prepare for a recession.”
Executives in the real world realize they can no longer absorb the high costs of radical activism in hard times. They need to make money to keep their workers employed and firms open. ESG efforts without returns on investment are unsustainable.
Executives are suddenly realizing that ESG is focused on controlling and forcing behaviors. It is doing through capital markets what radical activists could not do through democratic processes.
Divesting from Blackrock
Investors are also taking note and divesting from BlackRock. They properly see this “degrowth” mania as suicidal to their interests and those of the nation. At a time of increased energy needs, for example, it makes no sense to use other people’s money to serve ideologies hell-bent on starving energy companies of capital.
Republican officials are withdrawing state pensions and other funds from BlackRock. They say that index fund firms should maximize, not weaponize, investments. States say they can no longer put their assets in ESG funds when BlackRock targets industries that provide them with massive influxes of tax revenue. They want out.
Louisiana Treasurer John Schroder, for example, announced that the state is withdrawing approximately $800 million from BlackRock funds within three months. He says ESG’s green positions clash with the state’s booming energy industry. BlackRock is actively engaged in destroying Louisiana’s economy.
Likewise, South Carolina is joining Louisiana by divesting its nearly $200 million in BlackRock holdings. South Carolina Treasurer Curtis Loftis called upon all states to “resist the pressure to simply fall into line with their leftist worldview.”
ESG Bleeding Funds
Some twenty states have begun to withdraw tens of millions of dollars in state funds from BlackRock. Last August, 19 attorney generals addressed a letter to BlackRock CEO Larry Fink complaining of the ESG practices. Arkansas, Utah, Texas, Missouri, West Virginia and Kentucky have been quite outspoken in resisting the craze. Nebraska Treasurer John Murante recently claimed BlackRock and other asset firms “have lost credibility on ESG investing.”
Florida controls $186 billion in state pension funds that state officials are soon withdrawing from activist ESG banks. Kentucky’s public pension authority and the state teachers’ retirement will be especially painful since it will involve as much as $66 billion. BlackRock is being starved of the funds it sought to deny others. Its investment ratings and stock prices are going down. Nevertheless, the “woke” company is doubling down in its erroneous position by expanding its ESG offerings.
The Prestige of Holding ESG Investments
Investors with good business sense know a bad deal when they see one. They are exiting while they can. Conservative state governments also recognize the warning signs that ESG funds are bad business.
However, the liberal establishment has so promoted ESG that demand remains high for these ideological index funds. Such customers are not “following the money” but prefer to sacrifice it to their “woke” divinities.
Unfortunately, liberal investment managers can count on gullible “woke” investors who, instead of seeking a higher ROI, are mesmerized by the totemic prestige of holding these politically correct yet financially bankrupt assets.
The ESG boomerang is a warning to BlackRock and other investment managers that their game has been understood. At least some people and important institutions realize the dangers of following this dangerous path and are willing to spread the word that ESG "wokeness" must be avoided like the plague.