BlackRock CEO Fink: Oil and gas still has ‘vital role’ to play in meeting energy needs
BlackRock chief executive Larry Fink has published his annual letter to businesses, stating that climate risk was still an investment risk, but that BlackRock would still be supporting oil and gas globally as part of a low-carbon transition.
Fink’s annual letter was not addressed to chief executives this year, but rather “all stakeholders”, noting that they are all “facing so many of the same issues”.
The central theme of Fink’s 2023 letter was that of an impending “regional banking crisis” and a current lack of political support to stimulate the economy. While Fink does not mention environmental, social, and governance (ESG) this year, a portion of the letter is dedicated to the low-carbon transition and the energy crisis.
“For years now, we have viewed climate risk as an investment risk. That’s still the case,” Fink wrote, referencing the wildfires in California and flooding in Pakistan. Fink also described the $120bn that insurers had to spend to cover natural catastrophes in 2022 as a “once unthinkable figure”.
Whereas last year’s annual letter from Fink said that sustainability should act as the “north star” while capturing the “tectonic” shift towards sustainability and a net-zero future, the 2023 iteration of the letter scales back the focus and impetus on the low-carbon transition.
Fink has become a target for Republican lawmakers for his backing of ESG investing and the BlackRock chief executive used his letter to state that it was not the role of the finance sector to be the “environmental police”. Fink states that it would be governments who need to enact policies to improve approaches to business practices.
“The transition to a low-carbon economy is top of mind for many of our clients,” Fink wrote. “Our clients have a range of investment objectives and perspectives. We have clients who want to invest in ways that seek to align with a particular transition path or to accelerate that transition. We have clients who choose not to. We offer choice to help clients reach their investment goals, and we manage their assets consistent with their objectives and guidelines.
“It is not the role of an asset manager like BlackRock to engineer a particular outcome in the economy, and we don’t know the ultimate path and timing of the transition. Government policy, technological innovation, and consumer preferences will ultimately determine the pace and scale of decarbonisation. Our job is to think through and model different scenarios to understand implications for our clients’ portfolios.”
Oil and gas support
The language in this year’s letter is much softer compared to when BlackRock warned that high-level directors could be voted out of companies that are failing to act on climate risks posed to individual firms. BlackRock has historically faced criticism over its handling of the sustainability performance of the firms it invests in.
Fink does call on businesses to improve approaches to disclosure. Referencing the fact that more than half of the companies in the S&P 500 now voluntarily report Scope 1 and Scope 2 emissions, Fink stated that better data “is essential” and called on more companies to take up disclosure practices.
However, Fink also signalled support for the oil and gas industry, in part as a response to the ongoing energy crisis.
Fink claimed that BlackRock would “work with energy companies globally that are essential in meeting societies’ energy needs” and this would include fossil fuel and natural gas companies, provided they are taking steps to mitigate their emissions.
“Different countries and industries will move at different speeds, and oil and gas will play a vital role in meeting global energy demands through that journey,” Fink wrote. “Many of our clients see the investment opportunities that will come as established energy companies adapt their businesses. They recognise the vital role energy companies will play in ensuring energy security and a successful energy transition.
“We are working with energy companies globally that are essential in meeting societies’ energy needs. To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas, with steps taken to mitigate methane emissions, will remain important sources of energy for many years ahead. BlackRock is also investing, on behalf of our clients, in responsibly-managed natural gas pipelines.”
BlackRock had pledged to build and launch the investment industry’s “most sophisticated” tools and advice to help clients align portfolios with net-zero by 2050, but critics may well argue that voicing support for fossil fuels will dampen the investor’s rhetoric on the net-zero transition.
Indeed, recent analysis of the ESG policies and performance of investors collectively managing $77trn of assets has found that two-thirds have “serious gaps” in their approach, including BlackRock. BlackRock, Vanguard, State Street and Fidelity were among the dozens of asset managers receiving low grades in ShareAction’s analysis of ESG practices in the sector.
Commenting on Larry Fink’s annual letter published today, Lucie Pinson, executive director of Reclaim Finance said: “Larry Fink says that he encourages people to invest with a long-term perspective, but he insists that they must have a choice of investing in the fossil fuel polluters that pose a long-term risk. When he urges people to invest for their retirements but stands ready to invest their pensions into companies destroying their future, Fink has its self-interest in mind, not the long-term interest of his clients.
“Mr. Fink cannot have his cake and eat it – if his business is serious about addressing climate risks, then BlackRock must take a stronger stance against investing in the development of new oil and gas projects, including the development of LNG. Even worse, by depicting gas as a bridging fuel that must be supported, Fink misrepresents the facts and fails to provide his clients with the information they need to identify their long-term interests. As the IEA has made clear, there is no room in a 1.5C scenario for LNG and we need to stop opening new fields in order to reduce gas production by 23% by 2030. Mr. Fink must tailor his investments accordingly.”