BlackRock’s fossil fuel investments cost its investors $90 billion in lost value and missed opportunities over the last decade, according to a report that gives support to social impact and sustainable-energy strategies.
The world’s biggest asset manager, ignoring its own climate-change rhetoric, eroded the value of its $6.5 trillion funds by betting on fossil-fuel companies while missing out on growth in the clean-energy sector, according to an Aug. 2 report from the Institute for Energy Economics and Financial Analysis. About 75% of the loss is due to investments in four companies: ExxonMobil, Chevron, Royal Dutch Shell and BP, which have underperformed in the past decade, according to the report’s analysis.
BlackRock disputes the IEEFA’s analysis, claiming its investments are mostly in index-based exchange-traded funds. Still, the institute blames the company for making bad choices.
“From a financial standpoint these are poor decisions,” Kathy Hipple, a financial analyst with IEEFA, told Karma. “BlackRock is bigger in value than the world’s third-biggest economy, Japan. They lag where they could have a leading role. The could be climate leaders — and would make financial sense as well.”
BlackRock said three years ago there’s “no place to hide” from climate change and its financial, economic and regulatory risks. Its climate change report suggested little downside to gradually incorporating climate factors into the investment process, and it saw potential upside.
CEO Larry Fink mentioned an “increasingly fragile” global landscape and a need for corporations to “address pressing social and economic issues,” in his annual letter to CEOs in January. The statements weren’t backed up by action, according to the Sierra Club. BlackRock is the largest investor in new coal plant development, one of the biggest investors in oil and gas companies, and the largest U.S. investor in rainforest destruction, the environmental group said.
The IEEFA finds BlackRock’s statements inconsistent. It entered 2019 as the largest shareholder Cloud Peak Energy, the No. 4 U.S. coal-mining company. BlackRock owned 14% of Cloud Peak until a month before the company filed for Chapter 11 Bankruptcy in May 2019, according to the report. While the U.S. equity market more than doubled over the past decade, Cloud Peak Energy lost all of its value. BlackRock investors lost $2 billion when Peabody Energy, the biggest U.S. coal company, went bankrupt in April 2016.
General Electric lost BlackRock investors $19.1 billion between 2008 and 2018, when compared to the returns that could have made by investing in the wider stock market, according to IEEFA.The collapse in value was in large-part attributed to GE’s traditional fossil-fuel power station construction business. GE is a conglomerate with interests including healthcare and aviation, and the losses were not confined to the turbine business.
“It’s increasingly clear that BlackRock’s investments in fossil fuels aren’t just hurting the climate and our communities, they’re hurting investors’ bottom line,” Ben Cushing, a Sierra Club campaign representative, told Karma. “It’s time for BlackRock and other major investors to stop paying lip service to sustainability and instead take meaningful action to shift their investments from the dirty fuels of the past to clean, renewable energy.”
BlackRock, disagreeing with the findings, said most of its equity holdings, including those cited by the IEEFA, are held through index-based exchange-traded funds and other index products that track the investment results of third-party indices. It called the conclusions “misplaced.”
“Index managers such as BlackRock seek to replicate the performance of the index and do not select or exclude one company over the other based on our views of a company. Index providers determine which companies to include in the indices they create based on the index methodology,” BlackRock said in a statement.
IEEFA took issue with that comment, pointing to the fact that BlackRock has actively and passively managed funds.
“They talk the talk, but don’t walk the walk,” Hipple said.
The fund manager is making moves into the clean-energy sector. BlackRock took a majority stake in GE’s solar business on July 16, boosting its footprint in the expanding solar storage market. In April, BlackRock-managed funds agreed to invest in CleanCapital, which owns and manages $300 million worth of small-scale solar systems in the U.S., and the two formed a partnership.
Despite the lost value, BlackRock’s shares have about doubled over the past decade.
“Part of the problem is that the oil industry is cyclical and the price was way inflated at the start of the decade,” Michael Lynch, president of Strategic Energy & Economic Research Inc., told Karma. “But it’s also true that nobody has come up with an iPhone in the oil industry. The closest thing is fracking, and that’s nothing in comparison.”
BlackRock and other institutional investors are financing renewable energy projects, but these are dwarfed by the investments in fossil-fuel producing companies. The losses by the biggest fund manager are further evidence for all investors that a move to sustainable energy isn’t just good for the environment, it’s also a money maker.