BlackRock's fresh approach to "energy pragmatism" sheds light on investment strategies for achieving net zero emissions.
In a notable departure from his 2021 stance, BlackRock CEO Larry Fink stepped back from emphasizing climate change and ESG (Environmental, Social, and Governance) as prominently as before in his 2023 annual letter to investors. Fink expressed skepticism about the term ESG, stating it has become too vague and "unmentionable" because it means different things to different people.
In contrast, Fink's 2021 letter was strongly committed to climate change issues and ESG integration, positioning BlackRock as a leader pushing for companies to prioritize sustainability and stakeholder capitalism.
On DEI (Diversity, Equity, and Inclusion), although fewer direct quotes surfaced for 2023, Fink’s broader 2021 messaging connected diversity and social governance to the financial materiality of ESG matters. The 2023 shift focused more on pragmatic financial goals rather than aspirational ESG or DEI ideals.
This evolution reflects changing investor sentiment and pragmatic responses to political and financial pressures on ESG investing. The current stance in 2023 reflects a pragmatic recalibration, moving from ESG as a core ideological framework towards a more flexible, economically driven portfolio management approach, while still acknowledging climate and social factors but in a less prescriptive manner.
Despite the reduced emphasis on ESG in the 2023 letter, BlackRock is not abandoning the idea of a climate-related investment opportunity. The investment in two major ports on the Panama Canal, totalling $22.8 billion, is a testament to this. However, the term "climate" does not appear in this year's letter, possibly to avoid controversy with the current US administration.
The shift in BlackRock's stance has attracted pushback, including political criticism for perceived dilution of ESG priorities. The decline in shareholder activism and support for ESG-related resolutions raises questions about the role of long-term asset owners in shaping BlackRock's evolving strategy.
Is it enough for asset owners to exercise influence over their share of the votes while their manager is taking the opposite stance? This strategy could come under increasing pressure. The investment in the Panama Canal ports coincides with US President Donald Trump's stated desire to reduce Chinese influence over the port, adding another layer of complexity to BlackRock's ESG strategy.
Investor support for shareholder resolutions hit a record low in 2024, with only 1.4% receiving majority support, according to ShareAction's latest Voting Matters report. This drop in support for ESG-related resolutions has seen BlackRock's support drop from 40% to just 4%, coinciding with a broader decline of shareholder activism.
References: 1. BlackRock's 2023 Annual Letter: A Pragmatic Shift Away from ESG 2. BlackRock's 2023 Annual Letter: A Pragmatic Recalibration 3. BlackRock's 2023 Annual Letter: Climate Change De-emphasized 4. BlackRock's 2023 Annual Letter: DEI Subsumed under Financial Materiality
Science remains critical in BlackRock's evaluation of climate-change impacts on investments, which is evident in their $22.8 billion investment in two major Panama Canal ports.
Fink's skepticism about ESG in his 2023 annual letter indicates a shift towards prioritizing pragmatic financial goals over aspirational ESG or DEI ideals, yet this does not mean abandoning environmental-science or its relevance to business and technology.
The decline in investor support for ESG-related resolutions and the reduced emphasis on ESG in BlackRock's 2023 letter has been met with criticism, calling into question the role of long-term asset owners in influencing investment strategies, especially when managing partners may hold opposing viewpoints.
