BlackRock and its founder and CEO, Laurence D. Fink, made waves earlier this week when he said in both an open letter to business leaders and article in the New York Times that it was high time for companies to do more than focus on the bottom line. Fink implored business leaders to take on a challenge usually left to non-profits, the occasional benefit corporation or an outlier brand such as Ben & Jerry’s: contribute to society or do not expect to receive any support from the financial giant that manages a reported $6 trillion in assets.
Reactions in the business press were all over the map, but were generally describing Fink and BlackRock as having a shot at helping to transform the role Corporate America plays in society. “Likely to take notice,” said CNN in assessing the impact of BlackRock’s letter. “A watershed moment,” noted reporter Andrew Ross Sorkin, who interviewed Fink for the Times.
Fink’s letter caps a busy several months for BlackRock, which saw the asset management firm side with activist investors on proxy votes far more than in previous years. “Passive investors are the new shareholder activists,” declared Barron’s last summer, noting that BlackRock and competitors such as Vanguard increasingly voted to approve shareholder resolutions related to contentious issues such as climate change. After all, such an approach is a sharp departure for BlackRock, which usually is not trying to beat the market – the company has historically been more of a passive investor, pitching financial products such as indexed funds or retirement accounts.
BlackRock has become more vocal, and even confrontational, with one notable example being a managing partners declaring last summer that “coal is dead.” In recent years, the company has repeatedly admonished investors that they had to keep climate change risks in mind when evaluating their portfolios. “The longer an asset owner’s time horizon, the more climate-related risks compound,” said a September 2016 report.
Yet not everyone was enamored with the public stance taken by BlackRock and Fink. Some NGOs, for example, have pointed out that the company has ties to oil exploration projects in the Amazonian rainforests of Peru and Ecuador, the results of which have allegedly included environmental degradation and human rights violations. And the stodgy Financial Times was quick to paint BlackRock as a hypocrite last fall when it noted for every climate change-related proposal BlackRock supported, it voted against many others. “The engagement excuse on global warming is wearing thin,” wrote FT’s Attracta Mooney.
Writing for Bloomberg, Stephen Gandel wondered aloud whether BlackRock could have any influence on social and environmental issues when its influence on convincing companies to stop launching stock buybacks – a short-term strategy if there ever were one – has at best been minimal over the years. Gandel also noted that Fink’s annual letter comes around the time of of the World Economic Forum in Davos, which the reporter described as “the ultimate CEO lip service confab.” Finally, if the likes of BlackRock and Vanguard own such huge amounts of equities, why not use that leverage to push financial services companies like Standard & Poor’s to mandate that companies like ExxonMobil disclose their social impact?
But more important than whether or not BlackRock is really walking the talk is the information that the company is sending to its investors time and again. After all, when something is repeated constantly, the other party may eventually listen. As Blackrock reminded investors in the summer of 2016, “Bottom line: our research suggests there can be little downside to gradually incorporating climate factors into the investment process – and even potential upside.”
BlackRock, however, will only be taken seriously by the business community when it finally takes action and sheds some equities tied to companies with dubious environmental and social track records. Then, we would have a real story, one that could spur more financial institutions to follow through on what they do best: issue long reports about trends and risks. Those words, however, have so far not been matched by any forceful follow through.
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