Greenwashing Wall Street’s Invisible Hand
This report was written by Julia Rock.
The chief executive of the world’s largest asset manager was rewarded with laudatory headlines this week for once again promising that his firm, BlackRock, will use its market power to aid the fight against climate change. But CEO Larry Fink’s company has a long history of helping vote down environmental initiatives — and kept doing so last year.
The company, which manages nearly $9 trillion worth of global assets, wields immense economic power by virtue of the fact that it controls so much global capital. BlackRock has built a revolving door with the U.S. government, hiring former government officials for top jobs at the company and preparing its own C-suite to take jobs in government, including at the Federal Reserve and in the new Biden administration.
Beyond that influence, though, BlackRock is one of the financial industry’s most powerful invisible hands guiding politics and the economy through its position as a giant asset manager determining the fate of shareholder resolutions and board of director elections. And for all of Fink’s talk about climate change, his company used that power last year to vote against the vast majority of shareholder resolutions dealing with climate action and political spending disclosures.
In many of those cases, BlackRock’s support for the resolutions would have given them enough votes to pass.
“A greater amount of shareholder and voting power is concentrated in a smaller and smaller set of institutions than ever before, and BlackRock and Vanguard are both the largest and have historically been the most recalcitrant on issues of racial justice, climate change, and political spending,” Eli Kasargod-Staub, the co-founder and executive director of shareholder advocacy group Majority Action, told The Daily Poster.
Now, facing heightened scrutiny about the role of dark money in our political system following the insurrection, BlackRock is being pressured by institutional investors to use its voting power to mandate political spending disclosures by the companies whose shares it holds.
“Seismic Force”
Just over a year ago, Fink wrote in his annual letter to the chief executives of the world’s largest companies that “we are on the edge of a fundamental reshaping of finance,” due to the risks posed by climate change. Fink said that BlackRock had “announced a number of initiatives to place sustainability at the center of our investment approach.”
New York Times Dealbook editor Andrew Ross Sorkin wrote at the time that the move “could reshape how corporate America does business and put pressure on other large money managers to follow suit,” adding that Fink’s “intent is to encourage every company, not just energy firms, to rethink their carbon footprints.” Sorkin called the move a “watershed.”
But while Fink typically receives fawning praise in the business press, BlackRock’s actions over the past year suggest that his letter was a simple greenwash — a tried and true practice corporations use to generate praise for speaking about sustainability as they continue to invest in high emitting companies.
Between August 2019 and August 2020, BlackRock voted in favor of 1 of 10 shareholder resolutions that would have required companies to take action on climate change, whether through disclosure of climate risk, emissions reduction targets, or other actions, according to a study by ShareAction, a responsible investment organization. Among the largest asset managers, BlackRock voted in favor of the fewest climate resolutions.
The outcome wasn’t just symbolic: Of the 102 resolutions that came before BlackRock in that time frame regarding climate, only 15 of them passed. With BlackRock’s support, more than twice that number would have passed, according to the ShareAction study.
Despite this record, Fink issued a new CEO letter this month, once again casting BlackRock as an environmental leader. He asserted that the pandemic “has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives.” He added that BlackRock was commiting to net zero greenhouse gas emissions by 2050, and asked companies to disclose their own plans to reach net zero emissions as well.
The New York Times ate it up. Even though BlackRock spent the last year halting corporate action on climate change — and retained $85 billion in investments in coal after promising to divest from the dirty fuel — Sorkin reported that Fink’s “letter landed with seismic force in boardrooms across the globe.” He added that “this year, with an even more ambitious blueprint for businesses that BlackRock invests in, [the letter] may have an even bigger impact.”
Sorkin offered a statistic making BlackRock look like a climate hero: “Last year the firm voted against 69 companies and against 64 directors for climate-related reasons, while putting 191 companies ‘on watch,’” he wrote.
But BlackRock sustained support for 99 percent of “U.S. company-proposed directors across the energy, utility, banking, and automotive sectors” in 2020, according to a report from Majority Action.
BlackRock Protects Dark Money
Beyond climate, BlackRock has also used its shareholder power to actively undermine efforts to force companies to disclose political spending and trade association membership.
In 2020, BlackRock voted against 48 separate proposals designed to force corporate managers to disclose expenditures on lobbying or political spending at Fortune 500 companies, according to a Majority Action report. For at least eight of those proposals, BlackRock’s support would have changed the outcome.
Kasargod-Staub, the Majority Action director, said BlackRock “has the power, and has had the power, to hold corporate boards accountable on both transparency and alignment around corporate political spending, and have historically chosen to shield corporate boards from accountability.”
In 2020, BlackRock told investors that “we believe that it is not the role of shareholders to suggest or approve corporate political activities; therefore we generally do not support proposals requesting a shareholder vote on political activities or expenditures.”
The company’s voting record compelled a group of state treasurers, elected fiduciaries, and trustees of public funds and retirement savings accounts — with collectively more than $1 trillion under management — to write a letter to Fink this week asking “how BlackRock will reform both its own corporate practices as well as its approach to investment stewardship regarding the lack of transparency, alignment, and accountability in portfolio companies at which BlackRock votes proxies.”
The officials wrote that the violent insurrection at the Capitol on January 6 “add greater urgency to concerns and expectations regarding corporate political spending and lobbying transparency and practices.” They noted that BlackRock’s political action committee had donated $85,000 to congresspeople who challenged the results of the 2020 election, and expressed concern that the firm is enabling other companies to hide their political contributions.
They demanded that BlackRock review its trade association memberships and political spending practices, and also take an active role in “holding companies accountable for comprehensive disclosure of corporate political spending by supporting shareholder proposals calling for greater disclosure.”
While BlackRock does disclose membership in trade associations, the firm does not say how much the company gives to each organization. The company does not disclose any information about contributions to dark money nonprofits, according to the Center for Political Accountability’s annual CPA-Zicklin index for 2020.
These signatories on the letter have a vested interest in such disclosures, because of what former Delaware Supreme Court Justice Chief Justice Leo Strine described as a “fiduciary blind spot” — keeping transactions in the dark deprives institutional investors of the information needed to know whether they are adequately protecting their customers’ money and assuring it isn’t misused.
BlackRock acknowledges this risk, even as it has been voting down disclosure initiatives.
“Companies may engage in certain political activities, within legal and regulatory limits, in order to influence public policy consistent with the companies’ values and strategies,” the firm’s shareholder resolution voting guide says. “These activities can also create risks, including: the potential for allegations of corruption; reputational risk associated with a candidate, party, or issue.”
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