BlackRock bungles green activists’ plans

BlackRock’s green hue is taking on a brown tint. The $10 trillion hedge fund giant laid out on Tuesday why it might vote against shareholder resolutions put forward by climate lobby groups that seek to ban oil and gas production. His boss, Larry Fink, has reason to do so, but his move puts efforts to decarbonize the world by 2050 on a new and uncertain trajectory.

BlackRock’s new stance is jarring in tone. At the COP26 summit in November, banks and asset managers, including Fink’s group, joined the Glasgow Finance Alliance for [emisiones] net zero, promising to set long-term and short-term goals to reduce emissions.

The fund manager will continue to require the companies it invests in to set those targets, but now it probably won’t support proposals from shareholders seeking to “micromanage” their strategies. She will pay “special attention” to those that require banks or energy groups to align their businesses only with scenarios that constrain global warming to 1.5 degrees Celsius above pre-industrial levels, which means she won’t support them either.

Fink has two key justifications. Private capital has no qualms about outpacing politicians, who are currently more focused on energy security than decarbonisation. The West’s need to replace Russian gas has made the European Union desperate to import as much US liquefied natural gas as possible. And the International Energy Agency, whose net-zero emissions scenario last year provided the intellectual basis for ending investment in the supply of new fossil fuels, has stressed that this crucially depends on an energy efficiency push to reduce demand now absent.

However, fund giants like BlackRock have another, more basic motivation. Last week, British oil company Shell posted its biggest quarterly net profit since 2008. Miner Glencore’s coal EBITDA will more than double this year from 2021. Investors want to follow the lead of hedge fund manager Dan Loeb, who said a week ago that his investments in companies like these two will return 20% of their market values ​​annually through buybacks and other actions, as long as commodity prices remain at their current levels.

For money managers, fossil fuel investments are simply too good to ignore. But if the trillions of dollars of institutional money had gone beyond them, oil producers and gas groups would have faced a higher cost of capital, and greater pressure to decarbonize. As things stand, backing from the world’s largest asset manager is likely to spur investment in a major source of emissions.