In January, the world's largest asset manager issued a warning shot: The status quo on climate change was no longer going to cut it.
In his annual letter, BlackRock CEO Larry Fink wrote: “We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change.”
With more than $6 trillion of investments under management and influence in the boardrooms of nearly 1,800 companies, what BlackRock says carries big weight across the corporate and political domains. But that weight only hits home if BlackRock follows through and presses for a response to climate change in boardrooms.
Among its specific pledges, BlackRock said it would divest from companies deriving 25 percent or more of their revenue from thermal coal and push companies to make climate and sustainability disclosures aligned with the guidelines set forth by the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures.
So, nine months later, is BlackRock following through?
The short answer is yes, or at least it is starting to, even if it has not moved fast or far enough to please climate activists. In the first half of 2020, more than 50 companies felt BlackRock’s disapproval over their lack of progress on climate change — including Chevron, ExxonMobil and German utility Uniper.
A spokesperson for BlackRock tells GTM that another 191 have "been put on watch" and can expect pushback in the boardroom in 2021.
Coal, obviously
With multiple investments in thousands of companies split across dozens of different funds, a comprehensive analysis of every investment might take a lifetime.
But picking out some important companies can test whether BlackRock is truly downscaling its coal investments and highlight where that backing is being redirected.
Coal mining firm Peabody Energy, for one, has seen its backing from BlackRock dwindle. In 2018 BlackRock held around 6.3 million shares in the company; that figure is now down to 5 million, and further divestments may be coming.
Peabody’s annual report points glumly at the negative sentiments of sections of the financial community.
“Certain banks, other financing sources and insurance companies have taken actions to limit available financing and insurance coverage for the development of new coal-fueled power plants and coal producers and utilities that derive a majority of their revenue from thermal coal, which also may adversely impact the future global demand for coal.”
Peabody warns that such moves could reduce demand for its products, increase its cost of borrowing and deflate its share price (which is down more than 70 percent in 2020).
At Peabody's annual meeting, BlackRock voted against the reelection of the firm’s health and safety chair, and cited “insufficient progress with respect to [Task Force on Climate-Related Financial Disclosures]- or [Sustainability Accounting Standards Board]-aligned reporting, specifically around target-setting.”
Peabody Energy is not alone among coal companies to feel BlackRock's wrath. In February, BlackRock owned a 12.8 percent stake in Contura Energy, another major coal miner; by August it had sold a third of those shares.
In the case of Uniper, BlackRock said the German utility's progress on climate reporting has been nonexistent, and if the entire board hadn’t resigned after its takeover by Fortum, BlackRock would have voted for all those with sustainability input not to be reelected.
There are two complications. One is that BlackRock looks after a lot of other people's money so it doesn't have the final say on where it's invested. Where it does have discretion over funds, those have all been removed from companies hitting that 25 percent revenue threshold from thermal coal as of May. The second complication is that clients may wish to invest in indexes of funds that include those companies. That's out of BlackRock's control. But as it vocalizes concerns in the boardroom, its clients' scrutiny of exposure to coal may also increase. Index investments make up 90 percent of all BlackRock's equity assets under management.
Oil companies under close scrutiny
BlackRock’s interactions with Shell may offer insight into its positioning with respect to the oil and gas sector.
BlackRock voted against a shareholder proposal that Shell set greenhouse gas targets, but only because it felt the company's net-zero target for 2050 — announced in April — was sufficient for now. BlackRock, which owned 7 percent of Shell as of earlier this year, has made clear that its ongoing support is conditional on climate progress.
“We will be monitoring closely the delivery against the targets set out to date," BlackRock said in a note about Shell's annual general meeting. "We will hold the management and board directors to account for lack of progress on their delivery through future voting on director elections."
Oil majors with no decarbonization plan will clearly have a target on their back, and even those with such plans in place are being monitored closely.
BlackRock says it will be “engaging” with another 110 carbon-intensive companies in late 2020.
The other (green) side of the coin
When it comes to clean energy, BlackRock's interests are varied, longstanding and growing.
BlackRock recently jumped its stake in SolarEdge to 10.3 percent, and it holds stakes in Ørsted, Vestas, SunPower, First Solar and Vivint Solar, to name a few.
BlackRock is the largest shareholder in both German utility giant RWE and the U.K. and Ireland’s SSE. In the past year, both RWE and SSE have sold their customer supply businesses and committed to developing huge portfolios of renewables.
Climate activists are understandably irked by the fact that BlackRock maintains billions of dollars of investment in fossil fuel businesses. Still, less than a year after Larry Fink’s letter, BlackRock has at least started doing what it said it would.
If BlackRock’s money continues to flow toward companies accelerating the transition, and it takes some other investors along with it, the investment giant may win forgiveness for not divesting on the turn of a dime.
This story has been updated to include details on BlackRock's index investments and it reaching its coal divestment goal in May.