BlackRock’s Shifts in Governance Leave ESG Foes Hungry for More

A series of recent moves by BlackRock Inc.—including bringing a top Saudi oil executive on its board—seem like steps likely to appease Republicans who have blasted the asset manager over what they say are woke ESG policies.

Don’t bet on it.

BlackRock’s appointment of Saudi Aramco CEO Amin Nasser to its board—along with plans to give US investors more voting power at shareholder meetings and eschew the term ESG—aren’t going to stop those fighting against investment decisions tied to a company’s environment, social and governance policies, ESG consultants and lawyers say. In fact, they say, the moves embolden critics.

“It’s gone beyond BlackRock,” said Douglas Chia, at an independent consulting firm Soundboard Governance. “Now that they’ve gotten traction, they can attack pretty much everybody and the whole concept of ESG and they don’t have to put a face to the name,” he said.

When announcing Nasser’s appointment, BlackRock emphasized the importance of the Middle East to the firm’s long-term strategy. Nasser has “a unique perspective” to provide, the firm said, adding that Nasser “established Aramco as a leader in the global energy transition.”

Republican ESG critics, nonetheless, could count the Aramco appointment as a win, and a reason to further pursue their efforts, Chia said. “I don’t think it changes Republican strategy because it’s been working for them. And if anything, it just encourages them to do more.”

The day after the Aramco announcement, Bill Huizenga (R-Mich.), chairman of the House Financial Services Oversight and Investigations Subcommittee, sent letters to asset managers, including BlackRock, The Vanguard Group Inc. and State Street Corporation, questioning how they fulfill their fiduciary responsibility. Huizenga asked BlackRock what climate initiatives it belongs to, which proxy advisory firms it interacts with, and what metrics it uses to measure the financial impact of ESG initiatives in relation to investor returns.

“The lack of transparency surrounding the decisions asset managers make on behalf of millions of retail investors is concerning,” Huizenga said in a press release.

BlackRock CEO Larry Fink—the target of much conservative ire—has said he wants to stop using the term ESG because of how it’s been weaponized across the political spectrum. BlackRock did not immediately comment.

Conservative politicians don’t appear likely to back down against companies that have prominently backed ESG as the clash over climate policies and more continues to balloon. “I don’t see that trend changing,” said Morris DeFeo, a partner at Herrick Feinstein.

“They’ll become less of a target when the most vocal advocates find a better target, its human nature,” DeFeo said. “There’s always an effort to find that poster child.”

An Oil CEO

Some critics saw the BlackRock move as hypocritical because of the emphasis it had placed on climate risk. Critics also pointed to scrutiny of Saudi Arabia’s human rights record, because the oil company—the largest oil producer in the world—is part-owned by the Saudi Arabian government.

“It’s definitely going to raise a lot of eyebrows” across the spectrum of the pro and anti-ESG camps, said Angeli Patel, an executive director at the Berkeley Center for Law and Business.

While BlackRock has embraced sustainable energy options, it has told investors that the oil industry remains important in the mix.

“We expect to remain long-term investors in carbon-intensive companies, because they play crucial roles in the economy and in a successful transition,” BlackRock said last year in its 2030 net zero statement. “The success of these companies will be critical to the global economy, the world’s low carbon ambitions and our clients’ long-term financial goals.”

Both liberal and conservative ESG experts said they don’t think the Aramco appointment is a direct response to the anti-ESG pressures. Some are also optimistic that the appointment gives BlackRock the opportunity to influence the biggest oil company in the world.

“In my opinion there is a very dire need to figure out what to do with these brown assets,” Patel said. “I do think it makes smart business sense to at least have someone of that perspective informing you of how this transition is going,” she added.

Because the global economy is still heavily reliant on fossil fuels, the asset manager is right not to ignore the issue, DeFeo said.

“So much of the world still is based in traditional energy sources and we’re still unfortunately living in a carbon-emitting world where a lot of economies and people depend on fossil fuels,” DeFeo said. “I’m not here to say that it’s good, but it’s realistic.”

Political Rumblings

BlackRock has also announced plans to give US investors more voting power at shareholder meetings—a move that followed criticism from both sides of the aisle concerning the firm’s input on ESG policies.

Republican lawmakers have kept a close eye on BlackRock since it established itself as an ESG proponent. Earlier this month, House Republicans, including House Judiciary Committee Chairman Jim Jordan (Ohio) also sent letters to financial services giants, including BlackRock and State Street, saying their efforts to fight climate change might violate US antitrust laws.

But while the Republican-led “ESG month” is underway—including a blitz of House Financial Services Committee hearings on the topic—BlackRock’s name hasn’t surfaced much.

Republicans say ESG pushes progressive policies that don’t prioritize financial metrics for shareholders. Democrats, meanwhile, have countered that investors want ESG information because it’s good for the performance of their investments.

“Prohibiting investors and asset managers from considering ESG data is interfering with the free market: censoring relevant financial information is exactly what Congress should not be doing,” Minnesota Attorney General Keith Ellison said at a July 12 House Financial Services Committee hearing on ESG.

At a Democratic-led committee roundtable on the same day, Maryland State Comptroller Brooke Lierman said it’s wrong to deny the investment risk associated with climate change.

“Telling investors that they cannot invest in certain energy technologies that are proven to work and gaining popularity is both anti-capitalist and irresponsible.” Lierman said. “Punishing companies who are trying to adapt to a changing market in order to enhance performance and their bottom line is antithetical to capitalism and to growth and progress and profitability,” she added.

Republican attacks appear to have hit their mark in some instances, such as in the insurance industry. Many insurers, including Munich Re, dropped out of the international Net Zero Insurance Alliance following anti-ESG attacks.

The clash is only expected to ramp up over the next year.

“The debate will get even more high pitched and uglier,” Chia said. “Once something becomes a campaign issue, the deeper you get into the season, the more mud-slinging happens.”