BlackRock, by far the world’s largest fund manager, has $6.5 trillion in assets under management.
But a new report published on Thursday says that BlackRock, which is based in the United States, has continued to ignore major financial risks associated with putting tens of billions of dollars into fossil fuel-dependent companies.
Released by the Institute for Energy Economics and Financial Analysis (IEEFA), the report puts a price tag on BlackRock’s strategy and says the firm’s refusal to address fossil-fuel risk has lost investors over $90bn during the last decade – in wealth and opportunity cost from just a few holdings.
Of these losses, around 75 percent are due to investments in four companies: ExxonMobil, Chevron Corp, Royal Dutch Shell Plc and BP Plc. All have underperformed in the market over the past 10 years.
The report says BlackRock could exercise more control over its passively managed portfolio, which is worth $4.3 trillion. It notes that competitors such as Amundi, Norges Bank and AP4 have “developed low-carbon investing strategies that provide at least comparable risk-adjusted returns in a cost-effective sustainable way”.
Tim Buckley, co-author of the report and IEEFA’s director of energy finance studies, said that “BlackRock is talking the talk, but when it comes to action they’re not matching what their peers are doing”.
Research organisation IEEFA’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.
Buckley told Al Jazeera that BlackRock is pretending “they are unable to make change and can’t control the system. That’s so far from the truth”.
In BlackRock’s statement responding to the report, the company said most of its equity holdings are “through index-based ETFs [exchange-traded funds] and other index products, which track the investment results of third-party indices”.
“Index managers such as BlackRock seek to replicate the performance of the index and do not select or exclude one company over the other based on our views of a company,” the statement said. “Index providers determine which companies to include in the indices they create.”
BlackRock said it offers clients many product choices, including portfolios with a focus on environmental, social and governance (ESG) factors, adding that such portfolios are among their fastest-growing.
The statement also described the report’s conclusions as “misplaced” and “meaningless”.
Former First Deputy Comptroller of New York State and report co-author Tom Sanzillo said that “BlackRock CEO Larry Fink should not allow his staff to portray him as a powerless pawn of the fossil-fuel industry”.
“BlackRock is a large consumer of index funds, a direct investor and a thought leader,” Sanzillo said. “It is not a passive player in the capital markets.”
The report said that on BlackRock’s board of directors, six out of 18 members have worked at companies with strong ties to the fossil-fuel sector.
It also said that, despite BlackRock marketing the sustainability of investments and publishing an assessment of climate-related risks, only 0.8 percent of the fund manager’s total portfolio is invested in ESG-oriented funds.
IEEFA contrasted BlackRock’s approach to recent moves by the trillion-dollar Norwegian government sovereign wealth fund, which announced a series of divestment actions from oil and gas.
“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,” Buckley said. “It is BlackRock’s fiduciary duty.”
The report found that BlackRock lost investors more than $2bn as Peabody Energy went bankrupt, then doubled down on Cloud Peak Energy as it went into bankruptcy three years later. And BlackRock apparently also lost its investors $19bn with General Electric.
For BlackRock to protect investors, Sanzillo asked, “How many more examples of value destruction will it take?” He added, “A diversified portfolio is not an excuse to lose money”.
“BlackRock is educating its clients to accept decline,” Sanzillo said.
IEEFA says BlackRock has failed to shield its investors from major long-term investment liabilities with its strategy, governance and shareholder policies and views on global economic growth.
The report recommends that BlackRock use low-emission index benchmarks for passive funds as a financial best practice and key principle of asset allocation.