As per the tradition, BlackRock’s annual letter to its clients gives a strong indication of how it stands on climate issues. The 2022 edition published on February 3rd was a first: BlackRock made a strong plea that all investors must now choose not if but how to manage the transition ahead. Ironically, the biggest asset manager in the world fails to specify how it will mitigate the disastrous impact of its investments at its own level, investments which currently enable fossil fuel expansion plans incompatible with a 1.5°C transition pathway. It’s time to choose: Blackrock cannot aspire to be the ‘world’s leading expert’ in net zero all the while massively supporting fossil fuel expansion.

While BlackRock calls in the letter for strong government action (1) to address fossil fuel demand and stresses governments’ responsibility in shaping the transition, it also makes it very clear that it is in its clients’ best interests to consider climate in every investment decision (2). The letter also shows that BlackRock is prepared to profit as much as possible from what it calls the transition.

The word “opportunities” is used 16 times and it is made clear that BlackRock is seeking to encourage investments in the carbon-intensive companies that are, in its view, transitioning. What is lacking here is any mention of the fact that investors across the globe are still increasingly moving their money towards unsustainable investments. If it is of course crucial that investments continue to flow to transitioning carbon-intensive companies, BlackRock should not ignore the other side of the picture.

BlackRock says we will need “shades of brown” to go green. It stresses several times the need to keep investing in oil and gas if the companies are transitioning and are “leaders in decarbonization”, but it does not clarify in the letter which criteria it considers to identify them. What is clear is that its outlook of the energy sector, provided in a separate report, is very misleading and simplistic. On one hand, it overstates the need for continued oil and gas capex and the role of gas in the transition (2). On the other hand, it ignores the most important conclusion of the IEA NZE: the need to stop opening new fossil fuel supply projects, with the exception of those that received approval by end 2021.

While it is defendable to remain invested in companies involved somewhat in brown activities, it is crucial for the most powerful investor in the world to recognize that:

1. Companies developing new fossil fuel supply projects do not have compatible strategies with limiting global warming to 1.5°C;
2. Companies developing new LNG projects and unabated fossil fuel power plants should not be supported and face serious stranded-asset risks.

By keeping a blind eye on its investees’ reluctance to stop opening new fossil fuel supply projects, BlackRock is actually not contributing to an orderly transition (3) but is increasing transition risks and physical risks.

BlackRock says in the letter that “withholding capital or divesting from [carbon intensive companies leading decarbonization within their industries] is counterproductive to the transition”. But it does not say how it intends to use its power to not let the other firms, those it would consider as the opposite of decarbonization leaders, slow down the transition. What is BlackRock concretely going to do regarding fossil fuel companies that are still opening new oil and gas fields or launching new coal projects? How will it deal with companies that are increasing their fossil fuel production against all climate odds? How will it deal with banks directly supporting these companies?

The very definition of which companies are decarbonization “leaders” vs “losers” is also absent, which makes the letter a useless paper tiger.

In sum, the letter reflects that BlackRock completely ignores the real game changer for the climate this year: fossil fuel expansion. While its coal policy adopted in 2019 was a first step towards recognizing its responsibility to exclude climate laggard companies (4), it still left the door wide open for companies developing new coal projects.

A meaningful way for BlackRock to kickstart the year as the “leading expert” it wants to be on climate would be to immediately exclude coal developers from all its funds and to clearly set a red line that investee companies must stop their fossil fuel expansion plans. The publication of clear guidelines on how it will use its investment stewardship tools to this end is a must-have for BlackRock. With no changes, the truth is that BlackRock is and will remain the biggest support of fossil fuel expansion.

Learn more :

See full analysis from the BlackRock’s Big Problem campaign.

Notes :

1. It is interesting to note that while BlackRock is calling for strong public action, our research shows that it has been lobbying against prescriptive regulation on sustainable finance in the EU.
2. “Today there is a significant degree of uncertainty about the transition. The issue, however, is no longer whether the net zero transition will happen but how – and what that means for your portfolio” A FRAMEWORK FOR OUR CLIENTS, BlackRock, 2022.
3. In the NZE of the IEA, most of the CAPEX envisioned is for existing fields. Only $77 bn per year goes to new fields approved before 2022 (end of 2021) and $0 goes to new fields starting this year. Furthermore, BlackRock gives fossil gas too much of a role in the transition. The lower carbon claim offers a false cover for a gas, which has significant and sizable climate impacts along the entire production cycle, particularly because of methane leakage and the increased emphasis on LNG.
4. As the IEA also concludes in its NZE scenario, the social and economic benefits of staying on track with a 1.5°C scenario are clear. On the other hand, increasing our reliance on fossil fuels is the worst way to plan for a just transition.
5. See our analysis of BlackRock current weak coal policy here.