Investor Highlight: BlackRock's ESG Investing

My first introduction to BlackRock was through the firm's partnership with a Bay Area nonprofit where I worked, Women’s Initiative for Self Employment (WISE). The women’s group sought to lend support to BlackRock's clients' small businesses and host the firm's course graduations in a marble and glass shining lobby. I then learned that our main contact at BlackRock, an intimidating yet affable woman in her late 30s, had left the corporate financial firm to get her yoga teacher training credential in Bali. The dichotomy between a global financial powerhouse and the human desire to find purpose and meaning brings up an important topic for private equity investors: the true value of ESG investments.

ESG Investments

ESG stands for Environmental, Social & Governance and refers to metrics guiding investments based on ethical and sustainable impact. As the thinking goes, someone who cares deeply for the environment desires a way in which to invest his or her money without inadvertently supporting Shell or BP, for instance. BlackRock emphasizes its commitment to using ESG as a guide for its investments and uses data to show the economic returns associated with companies that score high on ESG metrics. Overall ESG investments doubled over the previous year in 2020, with $51.1BN in new investments.

Value-driven shareholders

A recent CNBC article compared Warren Buffett’s Berkshire Hathaway to BlackRock from the vantage of ESG ratings. While Berkshire Hathaway has an enviable track record of performance, the firm falls low on the ESG scale. Buffet himself claims to care about the environment but refrains from using it as a guiding principle in investment decisions. This idea might not sit well with everyone who wants to believe their money is supporting a better future.

BlackRock, with an astounding $9TN in assets under management, believes its ESG investments are of growing importance to younger retail investors and those who stand to inherit their parents' wealth and has vowed to divest from fossil fuels. However, in spite of big promises, The Guardian revealed a loophole in which the firm was able to hold onto $85BN in coal-related companies, using the loophole that only a quarter of their profits were derived from the fossil fuel. 

So is it greenwashing?

According to Blackrock’s former head of sustainable investing, ESG is a “societal placebo” for feeling like we’re making progress against climate change and ethical business practices. He says short-term investments aren’t feasibly a driver for sustainable change. Instead, he suggests that systemic issues such as climate change can only be met by the democratic process. 

For more information on BlackRock, check out the firm's recent investments here.