Investment giant BlackRock faces critics on climate change, Amazon deforestation

REVERB is a new documentary series by CBS Reports. Watch “Complicit: The Amazon Fires” in the video player above.

After years of criticism from environmentalists, the world’s largest investor has finally accepted the challenge of tackling climate change in January. That’s when BlackRock, with a massive $ 7.4 trillion in customer assets, announced that it would sell $ 500 million in shares in the coal industry and drive more than the thousands of companies it invests in to make it sustainable. environmental priority.

But critics say the New York-based money manager is already showing “weakness” in his commitment to environmental issues. Specifically, they say BlackRock is being too passive in driving change in the agricultural and commodity industry, which many believe is the second largest contributor to climate change after the energy sector.

Unlike coal, BlackRock is not committed to selling its investments in companies in the industry, including companies that have been linked to fires in the Amazonwith Bungee Limited and Archer Daniels Midland. Nor has it forced companies to renew their operations.

• Did U.S. businesses and consumers help fuel fires in the Amazon rainforest?

Instead, BlackRock said it is asking companies to better disclose to investors their environmental risks and the costs they may incur in the future. BlackRock has not said what it would do if these costs were high, or if companies were unwilling to make such disclosures.

The latest bailout between BlackRock and its environmental critics began in January when co-founder Larry Fink released a letter to CEOs calling climate change a bigger “long-term structural crisis” than anyone has seen in the past. his 40 years of financial career. He said BlackRock would immediately start pushing for sustainability as a “core goal” for all the companies it invests in.

The letter he received great attention because of Fink’s prediction that climate change was already having an impact on the stock market and investors’ long-term prospects, and because Fink said his company would do something about it.

Another reason for the scrutiny: Fink’s forecast was a surprise to a company that in the past seemed reluctant to put its weight behind climate problems. Morningstar mutual fund researcher recently ranked BlackRock as the 46th out of 50 money management companies in terms of its track record of supporting environmental issues.

“Larry Fink’s letter was a radical change,” said Moira Birss, director of environmental group Amazon Watch. “Tracking to see”.

A sustained shock

BlackRock has been the focus of climate change activists in the past. Last year, when wildfires charred large expanses of the Amazon, protesters blocked the entrance to BlackRock’s New York headquarters. Protesters accused BlackRock of funding companies responsible for the destruction of the Amazon and other natural forests.

For years, BlackRock has basically said that even as the largest shareholder in the world, it invests the assets of large clients such as public pension funds and 401 (k) corporate plans that contain the assets of millions of shares. workers, had little ability to drive social issues such as climate change or arms regulation. This is because BlackRock offers so-called passive index funds that track everything from the S&P 500 to fast-growing economies like Brazil and China.

BlackRock manages index funds, but separate companies such as S&P Global choose index companies. Passive management funds, in accordance with the investment rules of the index, must buy the shares of all companies in the index, whether or not those companies are burning Amazon.

More recently, as the company’s profile has grown along with the scrutiny of its influence, BlackRock has committed to doing more to improve corporate behavior, although there has been no measurable follow-up. Two years ago, Fink said executives should put social purpose at the same level as profits. This year his call to action was climate change.

Environmental groups have reason to be suspicious. According to Morningstar, BlackRock was one of the mutual fund companies least likely to support the shareholders’ resolutions of the companies in which it had invested.

BlackRock had only supported 3% of the shareholder proposals that Morningstar reviewed over the past five years. These included proposals for social and corporate governance, as well as calls for environmental action. On environmental issues alone, BlackRock supported 8% of the shareholder resolutions it voted on last year, compared to a 42% support rate for all large fund families.

Last year, two S&P 500 companies, fast food giant Yum Brands and snack maker Mondelez International, faced shareholder resolutions specifically on deforestation. BlackRock voted against both.

“If BlackRock’s vote and shareholder turnout isn’t strong and effective when it comes to climate change, it wouldn’t be an exaggeration to call Fink’s words empty and hypocritical,” Birss told Amazon Watch. “There are more things BlackRock could and should do.”

In response to questions from CBS MoneyWatch, a BlackRock spokesman noted a report the company released last year that said the company had contacted “five agro-industrial companies based in Brazil” and that each company stated that its operations “were not the cause of, or directly affected by, the recent fires [in the Amazon]At the time, BlackRock said it would “be more involved when necessary to ensure the adoption of sound business practices and governance.”

On the company’s vote record, the BlackRock spokesman said shareholder votes do not fully reflect how it relates to companies. The spokesman said BlackRock has been successfully pushing for changes in sustainability issues for several years, but the company hopes to be more proactive when it comes to shareholder votes in the future.

“Given the foundations we have already laid and the growing investment risks surrounding sustainability, we will be increasingly willing to vote against management when companies have not advanced sufficiently,” the spokesman said.

Investment Case Study: Bunge Limited

BlackRock holds $ 337 million worth of shares on behalf of its customers at Bunge Limited, making it the third largest shareholder in the agricultural company, based in St. Louis. Louis.

Two years ago, Brazil fined Bunge and other big grain buyers $ 29 million for contributing to the country’s deforestation. Bunge said at the time that he believed the grain he bought did not come from a protected area.

Amazon Watch pointed to Bunge in a recent report on the destruction of Brazil’s rainforest, saying it is among some of the “big companies responsible for widespread deforestation in the Brazilian Amazon” and pointing to the Brazilian fine.

Much of BlackRock’s investment is made using typical index funds. But at least $ 16 million of BlackRock’s holdings in Bunge have been made through two index funds, the iShares MSCI USA ESG Select ETF and the iShares MSCI USA ESG Optimized ETF. The BlackRock website says these funds invest in companies that have “positive environmental” characteristics.

A spokesman for BlackRock said the company is in the process of changing the brand of some of its funds as environmentally and socially “conscious” to let customers know that these funds include companies with favorable characteristics, but that they are also ” optimized to offer a risk and return profile similar to broad market indices. “

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• Elizabeth Warren