19 GOP Attorneys General Slam BlackRock Over ESG Investments

‘Fiduciary duty is not lip service,’ says August 4 letter, which is addressed to CEO Larry Fink and seeks ‘clarification on actions that appear to have been motivated by interests other than maximizing financial return.’

A group of 19 Republican state attorneys general have written a letter to BlackRock stating that the asset manager is using state pension fund assets in environmental, social and governance investments that “force the phase-out of fossil fuels, increase energy prices, drive inflation and weaken the national security of the United States.”

The eight-page letter outlines how the group believes BlackRock is using “the hard-earned money of our states’ citizens to circumvent the best possible return on investment.”

“Our states will not idly stand for our pensioners’ retirements to be sacrificed for BlackRock’s climate agenda. The time has come for BlackRock to come clean on whether it actually values our states’ most valuable stakeholders, our current and future retirees, or risk losses even more significant than those caused by BlackRock’s quixotic climate agenda,” the letter says.

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The attorneys general asked BlackRock to respond by August 19.

BlackRock, in a statement, said that it manages money on behalf of its clients and helps them navigate investment risks.

“The money we manage is not our own,” a BlackRock spokesperson said in a statement. “It belongs to our clients, many of whom make their own asset allocation and portfolio construction decisions. We offer a range of products and strategies to achieve their desired outcomes…Many of our clients are choosing to invest in a mix of traditional energy companies, natural gas infrastructure, renewables and new decarbonization technologies because of the investment opportunities stemming from their crucial role in the economy.”

“Earlier this year, we further expanded client choice by offering interested institutional clients, including all US public pension clients, the ability to directly vote their shares. Clients entrusting us with $530 billion, more than a quarter of our institutional clients’ equity index assets, have taken this option,” the spokesman added.

Texas Attorney General Ken Paxton, in a statement about the letter, said “‘ESG’ goals, while ostensibly well-intentioned, make little economic sense, and have a direct adverse effect on Texas’s oil and gas economy and state pension fund performance. BlackRock’s actions may also violate state and federal law.”

In their letter, the attorneys general outline their belief that BlackRock’s claimed neutrality on energy investments “differs considerably” from the asset manager’s public commitments to organizations like the Net Zero Managers Alliance and the goals of the 2015 Paris Agreement on climate change.

“Accelerating and delivering the goals of the Paris Agreement across all assets under management through an escalation and voting strategy is a far cry from neutrality,” the letter states.

The letter also outlines several areas where the attorneys general question whether BlackRock may be in violation of state laws on maximizing financial returns to investors, including the fiduciary duties of loyalty and care.

“The stated reasons for your actions around promoting net zero, the Paris Agreement, or taking action on climate change indicate rampant violations of this duty, otherwise known as acting with ‘mixed motives,’” the letter states.

The letter also suggests that BlackRock’s content raises “antitrust concerns.”

“BlackRock’s actions appear to intentionally restrain and harm the competitiveness of the energy markets,” the letter says. “These antitrust concerns are especially acute because BlackRock and other asset managers affirmatively tout their market dominance.”

In addition to Paxton of Texas, signatories include attorneys general from Arizona, Nebraska, Alabama, Arkansas, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Ohio, Oklahoma, South Carolina, Utah and West Virginia.

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Tags: BlackRock, environmental social and governance investing, ESG, Ken Paxton, Larry Fink

In three decades, both asset classes went south at the same time in only nine quarters, and two of them occurred this year, says Panama’s Santiago.

Stocks and bonds are supposed to be the yin and yang of the investment world—one goes up, the other goes down. Not lately. The S&P 500 is off 13% this year, while the Bloomberg U.S. Agg Total Return Index is down 9.1%.

Maybe one reason is that many other asset classes have come to prominence in recent times, wrote Abdiel Santiago, CEO and CIO of Fondo de Ahorro de Panamá. Picture the array of alternative investments that have large allocations in institutional portfolios, which once were mainly equity and fixed income.

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Santiago, a finalist last year for CIO’s Industry Innovation Award for sovereign wealth funds, noted in a LinkedIn essay that quarters with such close stock-bond correlations have occurred only nine times over the past three decades. And two of them were in 2022—the first and second periods.

Previous correlations include one quarter in 2012, a very small dip of 1%, amid the European debt problem. Before that was in the 2008 global financial crisis. Santiago pointed out that “it is rare (and disappointing) to see the returns of both stocks AND bonds so far this year: for the 1st and 2nd quarters they have moved down together, and by a lot.”

The expansion of investable asset classes, i.e., adding alts, may mean “that this correlation is here to stay,” he mused. It’s remarkable, he said, that “more asset classes/investment instruments [are] available to investors today (think: private equity, crypto), with no signs of stopping.” Now, these alts provide bond and stock investors with the opportunity to flee to PE and the like.

Another possibility to explain the tighter correlation, he went on, is that credit analysts have been “taking too much of a ‘stock’ lens when rating bond issues.” Thus, they are “hyper-reacting to any news on the issuer that hits their screens.”

Santiago listed other, more conventional explanations for the correlation: high inflation, pandemic-induced logistical snags, the Ukraine war and rising interest rates after an era of easy money. None of those factors is ever good for stocks; sure, modest inflation is an equities tonic, but runaway inflation is the opposite. Meantime, high interest rates are Kryptonite for bonds.

None of this is a reason to give up on diversification, he counseled—but it is a warning to be watchful for any twists and turns ahead.