BlackRock strikes back at ESG critics

Investment giant BlackRock is rebutting Republican politicians over its ESG investment policies, arguing that its critics are wrong on both the science and the cents.

Look ahead: Private equity and other investment fund managers should pay close attention, because they could be next in the line of fire.

Backstory: Last month, 18 state attorneys general sent a letter to BlackRock, essentially arguing that its goal of moving toward a net-zero economy is in conflict with its fiduciary duty.

• Two states, Texas and West Virginia, also banned state entities from doing business with BlackRock, arguing (incorrectly) that the firm boycotts fossil fuel company investments.
• Axios' Alayna Treene reports that the BlackRock blowback is part of a coordinated lobbying effort, writing: "The crusade against ESG investments is something many conservatives feel deeply about — they view these companies as cultural enemies who are misusing investment funds to promote pro-climate policies... House Republicans plan to make an assault on ESG a central part of their legislative and investigative agenda if they take back the majority in November's midterms."

Driving the news: BlackRock yesterday responded to the AG's letter, with a 10-page letter of its own (see below).

• After again disputing the "boycott" accusations, the firm wrote: "We believe investors and companies that take a forward-looking position with respect to climate risk and its implications for the energy transition will generate better long-term financial outcomes."

The big picture: BlackRock is the world's largest asset manager, and its CEO Larry Fink has been very outspoken about ESG initiatives (with declining emphasis as the acronym progresses). In other words, it's a juicy target.

• But there's no reason that attention won't soon turn to large private equity firms, almost all of which now have ESG-specific executives.

• TPG, for example, is a Texas-based firm with a major renewable energy practice but just a de minimis level of fossil fuel exposure in its portfolio.
• Blackstone reportedly has sworn off upstream oil and gas plays for its PE and credit arms, and Apollo is out of the fossil fuel game too for its new flagship fund.

The bottom line: ESG began as a marketing buzzword for many investment firms, but since has become an integral part of investment strategy. Now firms must revisit the marketing, to defend against those attacking their investment strategies.

Read BlackRock's reply: