Listen: Blackrock, Larry Fink, Larry discussed on The Energy Gang
"Dollars to get there. What are those technologies? And how will they be deployed. I am here with my usual co hosts Catherine Hamilton and Jigger Shah. Both of them are not where they normally are. Catherine's there in Wisconsin. What are you doing in Wisconsin? Catherine I'm going to be speaking at the renew. Wisconsin Big League symposium here and right now I am looking out on my hotel room and I can see the capital of the St Catherine is the chair and Co founder of thirty eight solutions and Jigger is with us. He's the president of generate capital. He's with us from Albany New York in the business center of the airport. A man on the go. What are you doing in Albany? I'm meeting with one of our big clients plug power and I've I'm in this conference conference room. That has four walls around no windows and beautiful artwork on the walls. All right a big Newsweek. This week the the juiciest story is what's happening in the world of divestment. There are a couple of different stories playing out at the moment. The most pressing is this letter. That blackrock CEO Larry Fink sent to investors. Every year he sends this major letter to shareholders m investors and managers of funds that they invest in and explain what his thesis is and he's never really talked about climate change but this year was different. It was the first time that he talked about climate risk and didn't just mention he outright talked about it as central to black rocks Investment Strategy. Going forward this is important of course because blackrock is the world's biggest investor has seven trillion dollars of assets it's under management and So so Larry. Fink wrote this letter saying that climate change is almost invariably the top issue that clients around the world raise with blackrock and he saying that the strategy going forward will mean at blackrock assesses sustainability plans as part of its portfolio construction when he says In risk management it's going to exit investments that present risk and that means a lot of coal plants and potentially other fossil fuels It's GonNa Screen fossil-fuel investments to assess that risk and then they're gonNA strengthen their corporate wide commitment to sustainability and transparency. Karen See As it engages in this new investment strategy so this is a big deal and It's got everyone talking now about corporate sustainability and divestment issues that we have focused on for a long time but a new group of people is taking notice now so jigger just talk about black rock for a second. How Big League is this company? And why does this decision matter. Yeah to start. BLACKROCK is really an investment estimate firm but not in the way that you would think it is right so if you run a pension fund. Let's say it's got seventy million dollars of assets in it. It's a lot of money me if you decide to do your own. Investing it might cost you four million dollars a year to do investing. You could imagine that would cripple the amount of money you could give to pensioners every every year so instead you give it to block rock you say here are the instructions and they charge you one tenth of that amount to be your virtual CIO right so they'll invest in stocks and bonds and private equity and venture capital. And all the different things that you want them to do but they'll do it at one tenth the cost and now you're just a board of directors really have any employees at your pension fund. And so that's the service that block rock. Provides people is that they allocate capital at their at their wishes in ways that you know they want to do with a much lower cost to them than they do by hiring all these investment professionals in house. Okay so what does that mean for embarking on like a climate change and sustainability strategy. Help help us understand how one would operationalize it in that context. So that's the tricky part right is so they can't really do a lot. And so what they've really announced is that for coal mining in companies that are Something on the order of like twenty five percent of their revenues as coming from thermal coal sales sales. Then they're going to divest from them which is about five hundred million dollars. That's point zero zero zero seven percent of their assets so to put that in perspective. Active Black Rock has one hundred and seventy-six million dollar position in Hannon Armstrong and so it's like three divestments of like investments it's in things like Hannah Armstrong and so it's not a large amount of money now where this could go is they could have fossil fuel free offerings. That are crystal clear to their clients where their clients can. Just click a button and go fossil-fuel-free now that's interesting. Most most of them won't click that button. But then now activists can actually go and go after all these pension funds and other investors that park their money a black rock and enforce them to click the mouse. That says fossil-fuel-free right so it is hugely important don't get me wrong like this is a huge watershed deal. But I just think like the notion that the skin suddenly take seventeen billion hours of finance outweigh away from coal or oil or gas is not what he announced one more logistical question. That I WANNA get Catherine's reaction to this letter. So black rock is a major shareholder in untold a number of large companies and blackrock has resisted a lot of activist shareholder resolutions that would force companies to disclose closed climate risk to take actions to think about divesting from fossil fuels. And now what Larry Fink seems to be saying in his letter is that we're going to support many of those efforts even if we have blocked them in the past so that to me feels very different a pretty major reversal and quite significant. When we think about you know the governance since of some of the world's largest companies that blackrock invest in? Oh totally and I mean I look. I think when the world's largest capitalist I would say is Larry. Fink says that you know as he said in his letter I wrote it as a capitalist and my job as a capitalist is to help prepare our clients for the redistribution distribution of capital and more importantly to provide them with an investment portfolio that will outperform. I mean that really is a mic. Drop right he's basically saying that if you don't invest with climate change in mind as you're central theme you're not going to outperform and your job is to outperform and so start to realign capital so from that perspective it's useful. I think that the shareholder resolutions is slippery slope. So we'll see which resolutions they actually back. I could see them backing transparency. Not Resolutions but actually forcing companies that divest from fossil fuels like Exxon Mobil or other people. That's a slippery slope. You can imagine blackrock not not wanting to get into all the other issues that are unbalanced right. So parental leave policies right I mean pension policies like redistribution of wealth policies. Whether people should we be corpse like there's all sorts of shareholder resolutions and you know once they get too deep into this than they might have to actually read and discuss all all of them Catherine. What jumped out at you when you read? Larry thinks letter yeah. I really did indicate that this has become an investment decision for them so of course you would prefer that the carbon free to be the default not the button that you choose but to put a little perspective on it in two thousand fourteen. The commitments to divest were of assets under management whereas at fifty two billion dollars in five years it has gone up to eleven trillion and that is is in a world of between eighty one hundred trillion dollars worth of assets in total so it is a big deal and this signal because they are so much bigger than any any other asset managers Dad is sending a really big signal and it's becoming a much more sophisticated argument and just to clarify that number as I understand it. That's not eleven trillion dollars in fossil fuel assets that companies are walking away from that's total assets under management and companies with that much sure under management are agreeing to divest. Yes right. That's okay. Yeah that's right. That number is much much bigger and you know they're total fossil fuel spend might be one percent of that amount of money okay One thing that I was thinking through with Our senior editor Ingrid whereas we were framing. This conversation is how do you define divestment and jigger you talked about the nuances of what blackrock is doing here. And I think it's a little bit more confusing for folks You know I think we assume that. Oh blackrock is just gonNA walk away from all fossil fuels really quickly and I think that the definition of divestment is a little a bit confusing. So when you think about what Larry think is talking about here. Is the word divestment appropriate. Yeah I think think it is just because he's divesting from the coal miners but just to maybe even put this in perspective going far back right so in two thousand twelve. Larry Fink did a Ted interview you in the interview. The interviewer asked him about climate change. And he was just like aghast that someone would even ask them about climate change is like I don't deal with climate change right and so seven years later all of these activists have been literally just pounding people. And you've now taken down Larry Rethink right Larry Fink basically buckled under the pressure. That was put on him. I think the notion that he did this for his investors or shareholders or whatever. I think it's crap. I think he did this. Because the social license to invest in coal has gone away and by the way he didn't extend this to oil and gas. It's really just coal all and it's not coal-burning utilities like Axa Insurance and some other people who've done it's only coal miners right and so so. He is divesting from coal miners cleaners. But like I said it's a small number and you know and we can argue about whether divestment of equity is actually even that important Katherine. This brings me to a central question that I wanna answer and that is what is the role of activism verses. Just the reality of Finance and financial performance of these fossil fuel assets and climate risk. Now if you talk to activists I know you've you've talked to a number of folks on the environmental side. I didn't activists side for this segment. If you talk to them that they would agree with jigger that it is this social pressure and activist pressure and protests. That are causing people. Like Larry Fink to change their strategy. If you will you know. Read Larry's letter. He does mention protests and he does actually flag that social pressure had an influence. It's but you know if you listen to his interviews. He explicitly says we're doing this. Because we think it makes financial sense and I wonder what you think how much of this this has to do with that pressure campaign and how much of this has to do with just a business decision yet so I talked to tomorrow Tolls Laughlin who is with the three fifty dot org and Justin Gway. Who is with the sunrise project not to be confused with the sunrise movement and they both have really sophisticated understanding of the role of activism? Yes it has made a big difference. It started small and it's increased over time. It has been sustained. There still needs to be A shift so that there's a connection of the dots of the activists and the really kind of wonky discussions about money and where it goes But it has made a huge difference. Two thousand nine hundred was the largest year and they believe two thousand twenty. It's going to be even better. Bigger of the number of policies these are voluntary corporate level policies policies on divestment and fifty percent of those new policies but fifty percent of those are revisions of policies that corporation say you know what we need you to get beyond the check the box exercise and maybe some of the policies that we put in place aren't really working so let's revise them so they said that is just as important as the new policies policies being put into place and kind of the next frontier is for financial regulators to say all right we need to rein in reckless activity. That climate change is a huge impact on and if you continue and invest in these assets you are causing risk to your investors so it it can. It goes from really grassroots activism which has been critical to very sophisticated policy decisions. So let's turn our attention and now to another major piece of divestment news that has played out over the last couple of weeks Last Friday almost one hundred and fifty people were arrested in Washington. DC As part of this climate protests focus on financial institutions bill mckibben was there. A bunch of people like Lennox Yearwood from the hip hop caucus. was there a lot of the folks that we know. From the Activists Environmental Movement have been engaged in this new form of divestment and that is to strip the social license of big banks with consumer finance arms that are offering debt financing to coal plants to oil."