Despite BlackRock's attacks, the momentum of “awakened investing'' continues unabated

TThese are tough times for “wake investing,” Wall Street's fractious practice of profiting from doing good. For the first time since the strategy's inception in the 2010s, more U.S. investors are leaving green exchange-traded funds (ETFs) than buying them, with major U.S. Three investment managers have withdrawn from high-profile corporate agreements on climate change. The story that quickly emerged to explain this reversal of fortune was that of a sometimes nasty campaign against green investing champion Larry Fink and his $10 trillion asset management company BlackRock.
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, it finally paid off. But this week, the toasts of victory were muted as the annual Conservative Political Action Conference raged on at a convention hall in suburban Washington. “I'd like to have a martini early in the evening to celebrate,” says Scott Shepherd, a self-described free market activist. forbes“But I don't want to get slammed on Super Bowl Sunday.'' It has for years accused people like Mr. Fink of conflating investment returns with attempts at social change. Yet what is tipping the balance, if that is what is happening, is not political agitation, but far more powerful forces.

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For years, low interest rates that favor long-term investing have led to a rise in exchange-traded funds (ETFs) that consider companies' performance on environmental, social, and governance issues. Assets in U.S. ESG ETFs grew from less than $6 billion in 2018 to $97 billion in 2021, according to FactSet data. In 2022, interest rates began to skyrocket and growth began to slow, falling short of last year's median return of 20.8% for ESG equity funds. Comparable non-ESG funds are up 26.9%. Investors withdrew a net $2.5 billion from ESG ETFs in the last three months of 2023, according to Morningstar. This wasn't a huge blow, but it did change the game.

“Woke” critics were described as having the upper hand, and statements came from a variety of sources. national review (“I’m old enough to remember being told that efforts against ESG would have no effect,” commentator Andrew Stuttaford writes). new york times

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And even Morningstar researchers cite the “continued politicization of ESG investing” as a reason for the “chilling effect on demand for sustainable finance.” However, there was no evidence to support that conclusion, even if it could be gathered.

This is the first time we have obtained data. It's not a big deal, but preliminary findings are clear. “We don't see any evidence that political backlash is driving these changes,” said Quinn Curtis, a law professor at the University of Virginia. His analysis of ESG funding flows is very new and has not yet been submitted for peer review.He exclusively shared it with forbes. “For funds labeled ESG, I think outflows are basically what you would expect based on their recent performance. I’m being watched.”

However, the barrage did not stop. Because BlackRock is a world leader in ESG funds, the New York-based company has been a target and has been heavily criticized by anti-woke groups such as Consumers Research. One video produced by the group accuses BlackRock of “destroying America from within.” The paper said the company has been accused of “soaring gas prices” (U.S. pump prices fell 7% last year) and “harassment” of oil and gas companies (BlackRock calls itself “probably the world's largest investor in fossil fuel companies”). '').For example, owns 6.9% of ExxonMobil stock.
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5.5% of Chevron
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ConocoPhillips 8.2%
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) and “Crippled Family”. Texas government officials are boycotting BlackRock, accusing it of “boycotting” oil and gas companies. The state of Florida announced it would withdraw $2 billion from BlackRock's funds, citing “purposes other than revenue generation.” House Judiciary Committee Chairman Jim Jordan also alleged that the company colluded with other Wall Street investment firms to force a vast portfolio of companies to decarbonize.

Hyperbole is fashionable, but legitimate discussion is also needed. How far does the fiduciary duty of asset managers extend? Is maximizing profits their sole task, or do they have a responsibility to consider the threat of bushfires, droughts and floods in their investment decisions? How should the government respond? And how can the views and goals of pension fund members be taken into account? If it is true, as Fink et al. say, that climate change risk is also an investment risk, how should asset managers act? Or?

Jill E. Fish, a business law professor at the University of Pennsylvania, says the fiduciary's legal responsibilities are clear, even if they can be difficult to implement in the real world. “You can't invest in what you think is right at the expense of profit,” she says. “It is legal to invest according to your values, but only if you have a mission to do so and make it clear that you are doing so.” A lawsuit filed against a New York City pension fund is a new Boundaries may be established.

Meanwhile, Fink's personal property forbes It's pegged at $1.1 billion, making it an environmentally friendly deal for BlackRock. The fourth quarter of 2023 was particularly fruitful for investments considered “woke”, such as his $550 million partnership with Occidental Petroleum.
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At a carbon capture plant in Texas. Another $500 million deal with Temasek, a Singaporean sovereign wealth fund, will make batteries for electric vehicles in Kentucky. And he has an agreement with Alterra Partners to put his $2 billion into what they call climate change projects.

But there is an agreement that has not yet been concluded, and may never be concluded, and that is the most surprising thing. In a surprising development first reported by Bloomberg earlier this month, Fink met in Houston with one of his main opponents, Texas Lieutenant Governor Dan Patrick, who will join the state in 2022. demanded withdrawal from Blackrock. At a press conference focused on the state's need for a $10 billion investment in power grid upgrades, Patrick stood in front of the crowd and took to the microphone to call Fink the “King of Wall Street.” He and Fink were clearly chatting. Could BlackRock use some of that $10 trillion to help Patrick solve Texas' energy problems? The mere fact that they are talking is proof that politics is not everything and that peace negotiations on green investment are possible. After all, green is also the color of money.