BlackRock was downgraded by UBS analyst Brennan Hawken last week over the asset management company’s adherence to the environmental, social, and governance movement, also known as ESG.
As several conservative state officials continue to pull hundreds of millions from BlackRock and other asset managers, Hawken slashed the target stock price from $700 to $585, according to a report from Barron’s. Shares for BlackRock fell 1% last Tuesday on the news.
“We are downgrading BLK to Neutral based on environmental pressure to earnings and risk from the firm’s ESG positioning,” Hawken remarked, citing the potential for further lost business and increased regulatory scrutiny.
Most recently, South Carolina State Treasurer Curtis Lofits said that he would pull the state’s remaining $200 million in BlackRock because of the company’s “leftist worldview,” through which executives “undermine” their fiduciary responsibilities. BlackRock, which manages $8.5 trillion in client assets, has taken “voting action on climate issues” against dozens of its portfolio companies, according to an investment stewardship report.
Louisiana also announced intentions earlier this month to divest from BlackRock until a total of $794 million is removed from the company. Weeks earlier, the state of Texas revealed that BlackRock and nine other firms had violated state law by “refusing to deal with” or “terminating business activities with” companies involved in the production and use of fossil fuels “without an ordinary business purpose.”
BlackRock countered in a recent letter to state attorneys general, insisting that the officials falsely portray ESG as a departure from the maximization of profits and asserting that entities which assume a “forward-looking position with respect to climate risk and its implications for the energy transition will generate better long-term financial outcomes.”
At a recent panel event, BlackRock CEO Larry Fink and former President Bill Clinton discussed how ESG can aid governments in accelerating a transition toward renewable energy. “We’re seeing evidence every day that climate risk is investment risk,” Fink claimed, noting the movement of crop production as a purported result of heat and droughts. “People are waking up to that, and that’s created this tectonic shift.”
BlackRock is far from the only entity to suffer from ESG investments, which have underperformed over the past year largely as a result of overexposure to the technology sector and avoidance of fossil fuel investments. Harvard Management Company, the organization which oversees Harvard University’s endowment, posted a $2.3 billion loss in the past fiscal year and admitted that recent efforts to achieve net zero emissions through oil and gas divestment “weighed upon performance.”
A letter from Harvard Management Company CEO N.P. Narvekar added that the group is “proud to be deeply engaged in the issue of sustainability” and has invested in “technology-driven climate transition investments.” The organization is also working to address “the lack of gender and racial diversity in the financial industry” among portfolio investments and its own team.
Despite controversy surrounding ESG and the diversity, equity, and inclusion movement, also known as DEI, academia has forwarded both ideologies. The Wharton School of the University of Pennsylvania, which typically places first in national rankings of collegiate business programs, recently added DEI and ESG programs for graduate and undergraduate students.