The battle between the red states and BlackRock, the world’s largest asset manager, was a spectator’s delight.
Republicans usually don’t stand in line to hit the CEOs of Wall Street behemoths in public. But in places like Louisiana and North Carolina, that’s exactly what’s happening to BlackRock’s longtime leader, Lawrence D. Fink.
The battle is over BlackRock’s stance on ESG investing. At BlackRock, we believe that a focus on a company’s environmental, social and governance issues is the very definition of prudence. We also believe that how investors deal with these challenges will increasingly impact profits. State officials point to what they say is overly “awake” behavior by the asset manager.
A major challenge here is disagreement about what constitutes the fiduciary duty of an asset manager. And there’s an interesting schism among the red states, who hate BlackRock’s public stance. The state of Louisiana took the money away from BlackRock because of its fiduciary duty. North Carolina has not, citing fiduciary duty.
Fink called on government officials to urge companies to consider ESG factors.
“Stakeholders are pushing companies to address sensitive social and political issues, especially as they see governments failing to do so effectively,” he said in 2019. In his annual letter to the CEO, he writes.
Last year he stepped up his message. In his 2022 letter, Fink wrote, “Stakeholder capitalism is not about politics.” It’s not “I woke up”. That’s capitalism. At the same time, he tried to soften criticism by pointing out that it was not a matter of policy that BlackRock pulled back from investing in fossil fuels. No, he added.
Nevertheless, some of his customers are angry. Last year, Louisiana state treasurer John M. Schroeder announced plans to sell his $794 million investment managed by BlackRock. That’s a tiny percentage of his $8.6 trillion under management at the end of last year. Still, it makes headlines and could lead to someone like Schroeder doing the same.
In a letter to Fink, Schroeder wrote, “According to my lawyers, environmental, social, and governance investments are contrary to Louisiana law on fiduciary duty, and only for the financial benefit of the beneficiaries of state funds.” We need to focus on,” he said.
But then Mr. Schroeder made a strange comment. “This sale is necessary to protect Louisiana from actions and policies that actively seek to sabotage the fossil fuel sector,” he wrote. “Simply put, we cannot be complicit in our economic cripple.”
Schroeder isn’t talking about the best interests of taxpayers and citizens there when it comes to the state getting the lowest cost investment or highest return. Instead, he focuses on the state’s best economic interests.
I have consulted with him or his general counsel on how he balances the short-term interests of the state with the potential for better returns over time from the use of ESG principles. I wanted to talk to But it didn’t happen.
“I’m sorry, but our treasurer is not interested in providing an answer. When I asked him why he wasn’t interested, she didn’t answer,” spokeswoman Pamela Matassa said in an email.
Cynthia Hanawalt, a senior fellow at Columbia University’s Sabin Climate Change Law Center, took a closer look at Louisiana at my request. In that state, local officials basically argue that allowing investment managers to use ESG analysis tools would lead to a reduction in fossil fuel use and state revenues, she said.
“Whether that is true or not, it is clear that they are not focused on optimizing returns,” she said.
North Carolina Treasurer Dale R. Folwell is also concerned with the question of what we owe our constituencies. Spokeswoman Maria Sebekow sent me a letter last month announcing a “bombshell” letter written by Folwell calling on Fink to resign. “It’s not just a posture,” she added Sebekow.
But it represented a kind of hedge. On the one hand, Mr. Folwell never chopped a word during our interview. He quipped that ESG should stand for energy independence, safe streets and neighborhoods, and good governance.
Meanwhile, the Treasurer did not dismiss Mr. Fink from overseeing some of the state money, even when Mr. Fink called on BlackRock leaders to walk the plank. And that’s because he didn’t want to violate his duty to act in the best interest of the North Carolina residents to whom he responded.
“My fiduciary responsibility to those who teach, protect and serve, and to our retirees, is to maintain our investment in the current North Carolina Retirement Plan for BlackRock at this time,” he said in a statement. “Our job is to find the best value at the lowest cost and highest margin of safety.”
“It is not right for a member to take money out of BlackRock and give it to someone who charges four times as much,” he said in an interview.
The fact that states continue to exercise fiduciary duty in a variety of ways raises another question. Let’s just say that his ESG investments in BlackRock are fundamentally higher than what the state will move funds from in her BlackRock sale.Is that underperformance Could a state like Louisiana, which has professed to be concerned not only with investors but with the local economy, open up a fiduciary breach lawsuit?
Maybe. It is certainly tempting to watch a slagfest in court. There are hurdles.
One of the major challenges is the various forms of immunity that often protect state governments and the people who work for them.
The petitioner must also betray the red state judge. Jonathan Berry, a partner at Washington law firm Boyden Gray, who oversaw his ESG guidance and other regulatory issues at the Labor Department during the Trump administration, imagines a scenario that would go head-to-head with pension managers in California. Did.
“We cannot expect to win against Calpers in California court,” he said. In conservative states he will likely face ESG lawyers with equally long odds.
But if they try, they should make the most conservative case possible for this method of investing. These days, ESG means 1,500 things to 1,000 investment professionals. Irony abounds as investment firms reattach vague sustainability markers to existing funds and charge higher fees.
But there is at least some consensus emerging regarding a definition of ESG that does not evoke the image of people being chained to trees. “Essentially, ESG investing is about considering all material risks,” says Sonal Mahida, a Topic consultant who once worked for oil giant Hess.
And if an asset manager’s investments may be vulnerable to risks that fall under an ESG label, said asset manager, Columbia’s Hanawalt said, the asset manager should be careful. So it seems strange that state officials who oversee asset managers want to limit the use of information that helps the managers in their work.
“There is a cognitive dissonance between political narratives and people’s actual obligations,” she said. “If there is reason to believe that a company is vulnerable to the impacts of climate risks or other ESG factors, fiduciaries have an obligation to consider those factors.”
