Asset AllocationOctober 10, 2022

Louisiana Divests Nearly $800 Million from BlackRock to Protect Fossil Fuel Industry

Treasurer John Schroder calls ESG investing a threat to democracy and individual liberty.

Reported by Michael Katz

Louisiana Treasurer John Schroder is divesting $794 million worth of state funds from BlackRock because the world’s largest asset manager’s “blatantly anti-fossil fuel policies would destroy Louisiana’s economy.”

The divestment is in response to BlackRock’s sustainable investing philosophy, and for the firm calling on other companies to embrace net zero investment strategies that would harm the fossil fuel industry, which Schroder notes is a “vital part” of Louisiana’s economy.

“This divestment is necessary to protect Louisiana from actions and policies that would actively seek to hamstring our fossil fuel sector,” Schroder said in a letter to BlackRock CEO Larry Fink. “I refuse to invest a penny of our state’s funds with a company that would take food off tables, money out of pockets and jobs away from hardworking Louisianans.”

When asked to comment, a BlackRock spokesperson said the firm’s view is captured by a line in its Sept. 7 response to a letter it received from a group of 19 Republican state attorneys general saying environmental, social, and governance investments weaken America’s national security.

“We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments – and thereby jeopardize pensioners’ financial returns,” BlackRock wrote in the response.

Schroder also said that ESG investing “is contrary to Louisiana law on fiduciary duties, which requires a sole focus on financial returns.” He added that ESG investing is “a threat to our founding principles: democracy, economic freedom, and individual liberty. It threatens our democracy, bypasses the ballot box and allows large investment firms to push political agendas.”

Schroder even threw some shade at BlackRock, citing a Bloomberg article that said the $1.7 trillion the company lost during the first half of the year set a record for the largest amount of money lost by a single firm over a six-month period.

“Such huge losses would seem to indicate that BlackRock is either not focused on investor returns or that its ESG investment strategy is flawed,” Schroder said. Although Schroder said the loss was “associated with ESG accounts” there is no mention of ESG in the article.

Meanwhile, the Louisiana State Employees’ Retirement System, which counts Schroder among its board members, reported an investment loss of 6.9%, or $1 billion, for the fiscal year ending June 30, according to its financial report for fiscal years 2021 and 2022. This is compared with a 33.4% return and a $3.7 billion investment gain for fiscal year 2021.

The pension’s net position fell by $1.5 billion to $13.2 billion from $14.7 billion a year earlier, and the total pension liability for LASERS was $20.8 billion and $20.2 billion as of the end of fiscal years 2022 and 2021, respectively.

“The investment loss for 2022 is due to a number of factors including inflation reaching a multi-decade high, aggressive monetary policy tightening by the Federal Reserve, and lingering effects of the Russia-Ukraine conflict,” LASERS said in its report. “The investment income in 2021 is attributable to both global market improvements as well as the asset allocation changes adopted by the board of trustees in October 2020.”

The state pension changed its target asset allocation slightly from 2021 to 2022 as it increased its target for alternative investments to 26% of the portfolio from 24%, while lowering its target allocation to international fixed income to 17% from 18%, as well as its target allocation to cash to 0% from 1%. It maintained its target allocations for domestic equity (31%), international equity (23%), and domestic fixed income (3%).

LASERS said it intends to commit additional funds to alternative assets over time as it becomes under-represented relative to the LASERS target asset allocation. LASERS said it attempts to commit up to 200% of its target weighting to private markets investments to help ensure that the funded portion of the investments approximates the target allocation.

“The board of LASERS recognizes that alternative assets are potentially more risky than other investments of the system,” said the report. “As such, extra care is taken in evaluating and fully understanding all aspects on an alternative investment opportunity.”