The more your firms are seen to embrace the climate transition and the opportunities it brings, the more the market will reward your firms with higher valuations.- Larry Fink, CEO BlackRock Inc. Last month, New York City's Mayor Bill de Blasio and Comptroller Scott M. Stringer sent shockwaves through the oil and gas sector after they announced that the city's $226B pension fund plans to divest the majority of its fossil fuel investments over the next five years and also cut ties with other companies that have been contributing to global warming.
In the same month, Rockefeller Foundation, a family foundation built on one of the world's biggest oil fortunes, followed suit by announcing that it would ditch its oil and gas investments and cease making any new investments going forward. The $5-billion foundation was initially carved from oil money in the 19th century by John D. Rockefeller's son of the Standard Oil fame.
As expected, a cross-section of fossil fuel apologists dismissed the moves as yet another publicity stunt by left-leaning organizations desperate to burnish their green credentials, while clean energy buffs welcomed them as a beacon for the growing divestment movement.
And now yet another powerful investor has thrown its weight behind the divestment push, BlackRock Inc.(NYSE:BLK), the world's largest asset manager with $9 trillion in assets under management (AUM).
BlackRock CEO Larry Fink has disclosed plans to pressure companies to do a lot more to lower their carbon emissions by leveraging the massive weight of his firm mammoth asset base.
Net-zero economy
BlackRock and Larry Fink are not strangers to climate activism.
In the past, the CEO has called for corporate climate disclosures while also proclaiming that companies must have a purpose beyond profit.
Back in 2019, BlackRock declared its intention to increase its ESG (Environmental, Social and Governance) investments more than tenfold from $90 billion to a trillion dollars in the space of a decade.
Related: The 5 Best Utility Stocks In 2021 But now, Fink is pushing out the goalposts on climate action and wants companies that he invests in to disclose how they plan to achieve a net-zero economy, which he has defined as eliminating net greenhouse gas emissions by 2050.
And make no mistake about it: With nearly $9 trillion of investments under its watch, BlackRock can certainly throw its weight around. Indeed, last year, the firm voted against 69 companies and 64 company directors for climate-related reasons while placing another 191 companies on watch.
BlackRock plans to put oil and gas companies under the clamps by creating a ''temperature alignment metric'' for both its public equity and bond funds with explicit temperature alignment goals, including products aligned to a net-zero pathway.
But dedicated as it might be, divesting itself of oil and gas companies is easier said than done for BlackRock.
Not my money
Critics say that BlackRock and Fink have not been moving fast enough to fulfill climate pledges and point at the firm's $85 billion of assets tied to coal, not to mention big holdings in major oil and gas producers such as Royal Dutch Shell (NYSE:RDS.A) BP Plc. (NYSE:BP), and ExxonMobil (NYSE:XOM).
"BlackRock remains waist-deep in fossil fuel investments and the world's top backer of companies that destroy the Amazon rainforest and ignore the rights of indigenous people," environmental group Extinction Rebellion has carped.
BlackRock's defense: ''It's not my money.''
Turns out that much of BlackRock's fossil fuel companies are held in passive index funds, meaning it cannot divest.
BlackRock though says it's working behind the scenes with coal companies and urging them to adopt cleaner technologies. Fink acknowledges that financial markets have been slow to reflect the threat posed by climate change but has promised that:
"In the near future--and sooner than most anticipate--there will be a significant reallocation of capital."
At least BlackRock appears to have its priorities right.
Some money managers are defending their decision to continue buying oil and gas stocks by claiming that divestitures don't get these companies to change.
Related: Oil Prices Jump On Large Inventory Draw
According to Mark Regier, vice president of stewardship at Praxis Mutual Funds:
"There's a fundamental mythology in the divestment movement that when you divest, you're somehow fundamentally hurting that company, and that's just not how the markets work. When we sell, someone else buys.''
Chris Meyer, manager of stewardship investing research and advocacy at Praxis, says that by selling oil and gas stocks, investors are missing the opportunity to advocate for change and also fail to support companies powering a transition to green energy.
Praxis owns shares or green bonds from companies such as The Southern Company (NYSE:SO), ConocoPhillips (NYSE:COP) and NiSource Inc. (NYSE:NI).
Praxis cites its decision to stick with NiSource Inc. (NYSE:NI), an energy holding company that operates as a regulated natural gas and electric utility, as a textbook example of what can happen when [large] investors advocate for change. Praxis says that it started engaging with NiSource back in 2017 and managed to convince the utility to commit to a complete coal phaseout by 2028 to be fully replaced with wind and solar power generation. If successful, that scale of renewable investments will cut Indiana's overall greenhouse gas emissions by 90%, according to Meyer.
But claiming that continuing to invest in oil and gas companies is a great opportunity for climate advocacy is questionable wisdom at best and downright disingenuous at worst.
Investors have usually voted on this with their wallets, and that strategy has so far proven to be effective in forcing change.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com:
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
Comments
So what is Blackrocks purpose then?
One company whose forefathers caused a large majority of the carbon problem, by utilizing natural valleys and moving dirt to create a dam and significant open air "oil tanks" in Pennsylvania, now where oil to this day is still contaminating the Pennsylvania countryside, yet they are not offering to clean up these old sites. However, they are going to be model citizens and take their money and run as fast as they can away from this contamination.
If you venture, back to the old days, late 1800's and early 1900's when the Rockefeller decided he had enough and he started selling interests in oil wells and teapot refineries, the farthest issue from their mind was ridding themselves of environmental risk and so in these PSA's ( Purchase and Sale Agreements, maybe one page long, there was no mention of the buyer assuming the risk of contamination. So if you track back thru these agreements, one thing becomes abundantly clear and that the party who sold the assets (Rockenfellers) did not state in any agreement about these issues as no one thought about this type of liability. So as you trace back into yesteryear of agreements, one thing becomes clear with laser type focus, someone is responsible to the state of Pennsylvania, and in todays world it is the largest company or original person or company called the Rockenfellers.
Yet in today's climate you do not want to have to defend these monstrous contract liability, so they are announcing to the world that oil is the villain and they did nothing wrong. Not so fast, John D., go down to your local courthouse in several counties in Pennsylvania and see what the old contracts refer to as environmental damage. There is no reference, so it is funny how the state of NY wants to sue Exxon for climate issues, and they are going to rid themselves of oil stocks, but to ask the state of New York. who must have hundreds of lawyers they employ to filing suit against mother Rockenfeller's " which no corporation is more about America and Apple Pie than the Rockenfellers" but to sue the Rockenfellers, well, that is like suing your mother in the state of New York.
Maybe some NY and Pennsylvania lawyers will wake up and start investigating this prime plum that needs picking and by the way the largest "in ground" open oil tank, 1,000,000 barrels, resides in McCamey, Texas but the ones in Pennsylvania will easily rival this million barrel tank, and if you do not believe me look at all of the old pictures from 1860's and 1870's where oil is stored in open tanks with dirt, no metal just plain old dirt that the oil absorbs into. Good luck to the Rockenfellers, because they have opened this door by saying how evil oil is, and so if they are right it is evil, then the State of Pennsylvania and maybe Bill Blasio in NY, would like to set a meeting with the largest company who is in the original chain of title.
If you say, oh that was years ago and that was an individual and not the company, just ask Phillips Petroleum about cleaning up the old Okmulgee Refinery, which Phillips had sold in the 1930's and the refinery was finally shut down in 1979, and there were 5 companies who had owned the refinery after the 1930's, yet guess which company cleaned up the site and tore the refinery down and hauled it off. Your right , good ole, Phillips 66.
If you travel just south of Oklahoma about 100 miles you will find yourself in Mt. Pleasant, Texas , home of another shutdown refinery with trees growing up thru tanks and thru the refinery units. Now years ago this refinery was owned , by a predecessor, of Total Petroleum and then had several owners in the 50's, 60's and 70's, but guess which company, wound up with this superfund site, even though they had not owned it for 40 years, but to this date they are still cleaning and dismantling this former superfund site.
Just a note to the Rockenfellers, if you hear a little whisper in your ears, or if the phone is ringing tomorrow morning, that someone is calling you, it might be the state of Pennsylvania or perhaps even Bill Blasio-you never know what might be calling your name and wanting to set up a meeting to discuss their role in that evil enterprise called the "Oil Bidness"!!!!!!!!!!!!!!!!!