You may have heard about BlackRock’s annual letter to CEOs, in which CEO Larry Fink describes a “fundamental reshaping of finance.” In a stunning about-face on climate change in less than a decade, the world’s “biggest capitalist” wrote last month that:
“…the evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
Our reaction here at OpenInvest: no kidding.
This announcement provides further evidence for arguments we’ve been making around the direction of modern finance, from the demand-driven rise of ESG to the post-fund future enabled by custom indexing technology.
But aside from validating a few of our market theses, what’s the so-what from BlackRock’s announcement?
BlackRock’s announcement has already proven its cultural significance, but in terms of concrete action, it is incremental.
In his letter, Fink committed the company to divest from companies with more than a quarter of revenue generated from sales of thermal coal. According to GreenTech Media, this represents about $500 million in shares of coal mining companies.
For a company with seven trillion dollars in assets, this brave divestment commitment amounts to moving less than one percent of one percent of its AUM out of an already dying industry.
This number is so small in part because BlackRock reportedly feels “unable” to sell shares in its passive funds – the indices and ETFs which have come to dominate modern investing. At the same time, it wants to begin gradually offering new fossil fuel free versions of some of its investment products along with more ESG offerings.
Again: this is catch-up, not progress. While OpenInvest has proven that passive investment strategies in no way preclude the ability to divest, BlackRock will remain “one of the world’s largest investors in fossil-fuel companies,” according to the New York Times.
The rest of BlackRock’s grand ambitions should be taken with a dose of salt as well. Fink intimates BlackRock will be “increasingly disposed” to vote against management in shareholder resolutions where they deem ESG disclosures to fall short. But given that BlackRock’s own voting record on climate issues is historically among the worst in the industry, they’ve set a very, very low bar.
To be fair, they’re not alone – as we’ve covered before, research has shown the Big 3 (BlackRock, Vanguard, and State Street Global Advisors) all have pretty dismal proxy voting engagement on ESG issues.
Vanguard barely votes on ESG
% of votes cast by Vanguard by type
If BlackRock actually follows through, it would certainly help. If.
Call us hard to impress, but BlackRock’s groundbreaking call to change finance amounts to one doozy of an understatement – particularly given all the hype this announcement made in the press.
OpenInvest’s technology puts the power back in the hands of people
Contrary to BlackRock’s equivocation on responsible passive investment strategies, indexing is not synonymous with the abnegation of agency. Indexing is not synonymous with commingled vehicles, so there’s no reason everyone can’t have their voices heard. This is exactly what OpenInvest is proving with our partners.
Over the past 5 years, OpenInvest has developed indexing technology that not only shifts investments away from greenhouse emissions, but also away from companies that exploit workers, perpetuate homophobic and sexist workplace practices, or profit from the disproportionate imprisonment of people of color.
After all, once you realize you can use your investments to improve the world, why stop at climate change? We invite you to join us in this movement. Check out the future of ethical investing by contacting us at firstname.lastname@example.org.
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