The influential global think tank says it is "not yet persuaded" by BlackRock's sustainability efforts particularly around climate change risk and fossil fuel ownership.
The World Resources Institute is a global research organization with over 700 staff operating in 60 countries around the globe. Today they called out global investment giant BlackRock, analyzing the gap between their rhetoric on sustainability and "social purpose" and their practices.
What they found was not impressive.
Below is an excerpt of their critique, which matches pretty closely with ours. You can read the full article here on the WRI website.
While BlackRock has made some notable progress in the above areas, change has been lacking in others. Indeed, sustainability has yet to be mainstreamed into the firm's core business practices.
1. Weak voting record on climate-related disclosure
To be sure, Fink believes there are better ways to engage with companies than through proxy voting. But even as it engages firms privately, BlackRock is voting on shareholder resolutions. When it comes to climate change, its voting practices are among the worst in the fund industry.
BlackRock supported only 10% of 2018 climate-related shareholder proposals. Only five firms supported less. There are also examples of situations where the firm's voting practices appear to conflict directly with the sustainability mandate of a fund. For example, BlackRock's Impact US Equity fund voted against three resolutions demanding improved greenhouse gas (GHG) disclosure last year, even though carbon intensity is one of the fund's priority impacts.
In terms of direct engagement, BlackRock is still notably absent from the Climate Action 100+ initiative, a network of over 340 investors with $32 trillion in assets under management. The network engages the world's largest GHG emitters to take necessary action on climate change. Because of its size, BlackRock may have little incentive to coordinate with other investors on stewardship. But given the scale and urgency of the climate change threat—and Fink's 2018 letter—this may be a situation where the firm should consider joining a coalition. Working as part of a group would only magnify BlackRock's shareholder power and help it implement the change it wants to see.
2. Very high exposure to fossil fuel development
Among U.S. asset managers, BlackRock has the highest absolute holdings in thermal coal and oil and gas reserves, through its investments in companies. It is also the world's largest investor in companies that are building new coal power capacity, with $11 billion invested in such companies. InfluenceMap found that BlackRock's funds are the most "coal dense" among its peers---its funds have the highest tonnage of thermal coal per million dollars of assets under management. According to their research, the coal density of BlackRock's funds is 50% higher than the benchmark average for 60,000 listed funds.
To be fair, this exposure is driven by BlackRock's passive funds that track various traditional indexes. But there are several things BlackRock could do. For example, the company could stop offering products that track indexes with high carbon footprints, such as the iShares Select Dividend ETF and the iShares MSCI Germany ETF. While that may be unlikely so long as clients demand those products, BlackRock could at least stop including products with high carbon footprints compared to benchmarks among its "sustainable" offerings, as is the case with, for example, its iShares Global Clean Energy ETF and iShares MSCI EAF ESG Optimized ETF. It also could support the climate shareholder resolutions that aim to make these companies more sustainable.
3. Some "sustainable" funds are not really sustainable
Even BlackRock's "sustainable" investment funds contain shares of fossil fuel companies. Some of its ESG funds hold companies that own reserves with some of the world's highest carbon-emissions potential, such as ConocoPhillips and Hess Corp. Also, some of BlackRock's "low-carbon" funds invest in fossil fuel companies. For example, the iShares MSCI ACWI Low Carbon Target ETF has about 2% of its assets invested in 15 companies on the Carbon Underground 200 list (the top 200 owners of coal and oil/gas reserves).
This raises a bigger question: Do fossil fuel companies belong in ESG or low carbon investment funds at all?
To be fair to BlackRock, fossil-fuel company shares in ESG and low-carbon funds is not an anomaly in the industry. Also, the question is more nuanced than it first appears. Some oil majors are investing in renewable energy and positioning themselves to adapt to the transition to a low-carbon economy. A few European oil majors, for example, have embraced low-carbon investments more warmly than their American counterparts. If fossil fuel companies are to be included in sustainable investment funds, these important distinctions should be reflected in the inclusion criteria. Yet, this is not always the case with BlackRock funds. For instance, iShares ESG MSCI EM ETF has a higher carbon footprint and carbon intensity relative to its benchmark.