In his annual Chairman’s Letter to Investors released on March 26, BlackRock CEO Larry Fink made some significant shifts in strategy. While much attention has been given to his call to rethink retirement, his approach to the energy sector and the absence of references to environmental, social, and governance (ESG) signals a change in focus. ESG investing has been on the rise in recent years, but there has been a backlash against it from conservatives. Despite this, BlackRock was an early proponent of ESG and Fink played a key role in promoting it, given the company’s vast assets under management, amounting to over $10 trillion.
The backlash against ESG was exemplified by Florida divesting $2 billion from BlackRock in 2022, following pressure from Governor Ron DeSantis. While this caused some harm to BlackRock, the company quickly rebounded. In contrast, at the 2023 United Nations Climate Change Summit, the United Arab Emirates invested $30 billion into a new climate fund called Alterra, managed by Lunate. This fund includes a $2 billion investment in BlackRock. Despite political controversies, BlackRock saw a substantial 16% increase in managed assets in 2023, reaching $10 trillion.
In March 2024, the Texas State Board of Education withdrew $8.5 billion in investments from BlackRock, which was viewed as a significant blow to the asset manager and the ESG movement. However, Alterra aims to attract $250 billion in investments by 2030, with BlackRock expected to receive a substantial portion of those funds. Fink’s 2024 letter to investors demonstrated a shift in terminology, avoiding the use of the term ESG, which he deemed too political. Instead, Fink introduced new terms like stakeholder capitalism, sustainable investing, or climate investing.
Fink’s letter also introduced the concept of “energy pragmatism,” emphasizing the need to balance the transition to renewable energy with energy security, especially in the wake of Russia’s invasion of Ukraine. This shift in focus towards energy pragmatism appears to be a response to critics, particularly in conservative circles, who have accused Fink of breaching his fiduciary duty by emphasizing ESG. Fink’s argument for the coexistence of renewable energy and hydrocarbons aligns with the need for energy independence, a key topic in Republican election rhetoric.
Fink highlighted the importance of balancing decarbonization efforts with the practical energy needs of growing states like Texas. He emphasized the role of companies like Occidental, which are engaged in both traditional energy production and decarbonization efforts, indicating BlackRock’s support for such dual strategies. Fink stressed that BlackRock’s investment decisions are driven by client preferences, whether they choose traditional energy assets or energy transition strategies. This approach could potentially appeal to conservative critics and align with the energy independence narrative in the upcoming Presidential election.
