BlackRock cools ESG tone amid blowback but defends climate investing strategy

BlackRock is walking a fine line in what has become a hot-button culture war issue that conservatives calls woke capitalism.

The world’s largest asset manager is tamping down the rhetoric on its support for so-called ESG investing that takes climate risks and social justice politics into consideration, while making clear it has no intentions of ditching the controversial financial strategy.

In his annual letter to investors, BlackRock CEO Larry Fink said it is not the role of private companies “to be the environmental police.” But he said it is “still the case” that the company views “climate risk as an investment risk.”

“Our clients are often investing for the long term, and we evaluate all kinds of long-term investment risks that could impact their portfolios — such as inflation, geopolitics, or the energy transition,” Mr. Fink wrote. “We know that the transition will not be a straight line. Different countries and industries will move at different speeds, and oil and gas will play a vital role in meeting global energy demands through that journey.”

His moderate change in tone comes after more than a year of intense lobbying by Republican officials and lawmakers across the country against environmental, social and corporate governance investing. They have especially targeted Mr. Fink and BlackRock, considered by conservative critics to be the prime example of the investment movement.

ESG critics say Mr. Fink has used the behemoth firm’s $10 trillion in assets under management and its proxy voting power at public companies to force executives to make decisions based on climate change and diversity quotas that jeopardize returns on investments.

Consumers’ Research, a conservative advocacy group that is a leading ESG opponent and BlackRock critic, accused Mr. Fink of trying to appease climate activists and ESG foes amid a broader war on the movement that has cost the company billions in lost business from Republican-led states.

Will Hild, executive director of Consumers’ Research, said while he was “heartened to see that they clearly are feeling the heat,” the blowback from Republicans should come as no surprise.

“He’s not wrong when he says he’s stuck between two sides,” Mr. Hild said in an interview. “What he’s wrong about is that he seems to claim that makes him some sort of moral centrist where he’s got extremists on both sides. He is absolutely walking a tightrope of his own making and malfeasance.”

In pulling back from some of BlackRock’s more aggressive promises on ESG and achieving net-zero emission goals, Mr. Fink has also drawn fire from clients representing liberals. As a defense against GOP claims the company is “boycotting” fossil fuels, BlackRock highlights its more than $200 billion it has invested on behalf of clients in the oil and natural gas sector.

Last September, New York City said it was reevaluating its business relationship with the firm amid concerns it was deviating from its “climate commitments.”

In this year’s shareholder letter, Mr. Fink tried to thread the needle by emphasizing it’s ultimately up to individual investors — rather than BlackRock — where money should be invested. He explained their position at length under a section titled: “Helping clients navigate and invest in the global energy transition.”

“We have clients who want to invest in ways that seek to align with a particular transition path or to accelerate that transition. We have clients who choose not to,” Mr. Fink wrote. “We offer choice to help clients reach their investment goals, and we manage their assets consistent with their objectives and guidelines.”

Mr. Fink’s more neutral stance is in contrast to his 2020 investor letter, which stated the firm “does not see itself as a passive observer in the low-carbon transition.”

“We believe we have a significant responsibility — as a provider of index funds, as a fiduciary, and as a member of society — to play a constructive role in the transition,” he wrote at the time.

Still, Mr. Fink said this time around that whether clients may agree with climate investing, there’s money to be made. He specifically cited the $370 billion allocated last year for clean energy in Democrats’ tax-and-climate spending law — dubbed the Inflation Reduction Act — as “creating significant opportunities for investors to allocate capital to the energy transition.”

“Some of the most attractive investment opportunities in the years ahead will be in the transition finance space,” Mr. Fink wrote. “Given its importance to our clients, BlackRock’s ambition is to be the leading investor in these opportunities on their behalf.”