Darbonne: The ESG Sword: BlackRock's Life, Death by ESG

Texas was kicking BlackRock out at press time of managing any of the $53 billion state school fund for lack of investment in Texas industries—namely, oil and gas production.

Mark McCombe, BlackRock vice chairman, replied, “Your actions put short-term politics over your long-term fiduciary responsibilities.”

Meanwhile, BlackRock, which has $10 trillion under management, was getting pushback from shareholders that state it isn’t “ESG” enough.

Reap what is sown?

The Texas Permanent School Fund (PSF) was set to withdraw $8.5 billion of assets from BlackRock by the end of April. The new managers will include Austin, Texas-based Dimensional Fund Advisors and Florida-based Intech, according to Bloomberg.

The PSF, formed by the Texas Constitution in 1845, dates back to a $2 million initial seed in 1854. Profits include more than $2.2 billion annually that help fund Texas K-12 schools.

Aaron Kinsey, chairman of the Texas State Board of Education, which oversees the PSF, wrote in an op-ed at RealClear in March, “What I might have guessed but didn’t know for certain until I sat in the pilot’s seat [in 2023] in oversight of the PSF is the astonishing rot permeating our country’s financial industry….”

“The nation’s finance industry, headquartered on Wall Street, needs a public reckoning and that’s a conversation I’m looking to start.”

Blackrock, State Street Corp., The Vanguard Group and other large fund managers have proclaimed “Texas’ signature industry—energy production—is evil and needs to be phased out,” Kinsey wrote.

“These fund managers happily accept our money but believe that its source—the PSF is largely funded by royalties from oil and gas—needs to be eliminated in the next 15 years.”

Kinsey acknowledged that some fund managers have stated they are backing off ESG but that he hasn’t seen it in action yet.

Meanwhile, fund managers and the “finance ecosystem” at large, including credit-rating agencies, are sticking with “the ESG agenda, which seeks to undermine and ultimately collapse, the economy of Texas,” he concluded.

At BlackRock, the hard “G” or governance part of ESG is in plain view in its own bylaws. Three shareholder proposals are on the agenda for its May 15 annual meeting. The threshold to get in the queue is a few grand.

BlackRock’s board is recommending investors vote “No” on all three.

In one, Washington, D.C.-based National Center for Public Policy Research (NCPPR), which has owned $2,000 or more worth of BlackRock stock for at least three years, wants shareholders to require BlackRock to report on the potential risks associated with omitting “viewpoint” and “ideology” from its employment policy.

“[Chairman and] CEO Larry Fink and BlackRock’s executive suite make no secret not only of their own leftwing commitments, but of their intent to use their power to make other American corporations bow to their personal policy preferences,” the NCPPR wrote to shareholders.

In another, London-based Bluebell Capital Partners, owner of at least $25,000 worth of BlackRock shares for at least one year, wants its fellow investors to require an independent chairman, writing that BlackRock doesn’t do enough ESG-based investing.

“The lack of independent oversight within BlackRock’s board can be evidenced by the numerous contradictions and inconsistencies between BlackRock’s ESG strategy and its implementation,” Bluebell wrote.

As examples, it cites these Bluebell investments in which BlackRock was also invested: a company increasing its thermal coal production; one that is polluting the Mediterranean; opposing 90% of owners of another company; backing a CEO who was convicted of financial fraud; and not filing suit against bank managers who systematically committed fraud.

“These examples are based on a small sample of companies,” Bluebell wrote. “…. An exhaustive list might reveal a much longer list of ESG inconsistencies and contradictions.”

The board replied that, under Fink’s leadership as both chairman and CEO, “BlackRock has delivered … 9,000% total return since our IPO.” It added that Bluebell is bitter about BlackRock not aligning with Bluebell’s proxy campaigns on some investments.

And lastly, Missouri-based Mercy Investment Services, which owns at least $2,000 worth of BlackRock shares for at least three years, wants a review of BlackRock’s voting record in its investments’ shareholder proposals on climate-change matters.

“According to ShareAction, in 2022 BlackRock ranked 62nd of 68 asset managers, supporting only 28% of environmental resolutions,” Mercy wrote. “… While BlackRock clearly states climate change creates material risk for companies, when voting it looks primarily at risk created for a specific company in the near-term.

“Such an approach is shortsighted and fails to acknowledge a multitude of physical and transition-related risks.”

BlackRock’s board wrote that doing this wouldn’t “be additive or yield meaningful new information.”