BlackRock’s Larry Fink tries to dodge Republican ire

Hello from Washington, where locals are competing to predict the timing of “peak bloom”. Unseasonably warm weather means the city’s cherry blossom buds could be at their fullest and most beautiful this weekend.

Meanwhile politics geeks are taking bets on how the collapse of Silicon Valley Bank will shape the priorities of regulators and lawmakers in months to come.

While Democrats debated whether to bring back rules that treated midsized banks as systemically risky, Republicans argued this week that elites in the US’s capital city were out of touch with the concerns of everyday Americans.

At a post-lunch press briefing on Capitol Hill, Steve Daines, a Republican senator from Montana, criticised the decision to bail out SVB depositors, many of them tech start-ups, using a levy on other banks around the country.

“The bailouts are going to put a lot of Montana banks and Montana families on the hook for the mismanagement of a [San Francisco] Bay Area Bank,” he said. “The last thing the federal government should be doing is taking the side of wealthy elites over hardworking families.”

It was a reminder that the rightwing backlash against “woke capitalism” is designed to tap into deeper anxieties about income inequality and how unevenly the benefits of globalisation are distributed across US states.

Read on for Patrick’s story on how BlackRock chief executive Larry Fink danced around political issues in his annual letter to investors.

And, according to new “corporate political responsibility” principles, companies should be banned from funding election campaigns. (Kenza Bryan)

Larry Fink letter dodges politics, but scrutiny will intensify in weeks ahead

In his annual letter to investors, chief executive Larry Fink defended BlackRock while tactfully avoiding US Republicans’ attacks against his company as part of their broader crusade against environmental, social and governance investing.

Some BlackRock clients want to invest in ways that align with a transition to a low-carbon economy — or even accelerate that transition, Fink wrote. “We have clients who choose not to,” he said.

From there, Fink called attention to his company’s new voting choice tool, which was announced in 2021 and allows investors to vote shares rather than relinquish this authority to BlackRock. Investors holding a total of more than $500bn have chosen to participate in voting choice to express their preferences at companies’ annual meetings, Fink wrote.

Voting remains a crucial question for environmentalists and human rights advocates pressuring companies to change behaviour. Some have told Moral Money their causes face an “existential threat” if BlackRock pulls back its support for environmental and social shareholder proposals. Last year, BlackRock’s support for US shareholder proposals on environmental and social issues fell by nearly half. Further erosion in support for climate and worker causes would give companies an upper hand in preserving the status quo, sources have said.

But overall, Fink’s investor letter affirmed that global warming remains important to BlackRock, Moira Birss, climate finance director at environmental non-profit Amazon Watch, told me.

“I am cautiously optimistic that he really made clear that climate risk is investment risk,” she said. “That was encouraging to see.”

And while Republicans have pulled more than $4bn from BlackRock over ESG concerns, the asset manager has scored significant wins this year. In February, the £8.8bn UK Royal Mail pension plan picked BlackRock to manage its money, switching from in-house management. The Royal Mail last year set a 2050 net zero greenhouse gas emissions target for its investment portfolio.

Though Fink stayed above the fray with this annual investor letter, BlackRock cannot avoid political scrutiny from the left and right in the weeks ahead as the annual meetings season begins in earnest. For example, a record number of abortion shareholder proposals will be up for a vote this year. We will be watching the meetings closely for voting clues from BlackRock and the other big asset managers. (Patrick Temple-West)

How to perform CPR on the body politic

The tear gas had barely cleared from Capitol Hill on January 6 2021 before people started to challenge companies that had funded the Republicans who encouraged the “stolen election” fiction that inspired that day’s assault on Congress. The fallout put new focus on the previously somewhat obscure concept of “corporate political responsibility”, or CPR.

Defining companies’ responsibilities when it comes to political spending, lobbying and the wider health of democracy has been difficult. (See the Moral Money Forum’s deep dive on this topic for our own attempt to do so.) Two years later, though, the University of Michigan’s Erb Institute has produced what it calls a non-partisan, pragmatic framework to guide companies’ engagement in political affairs.

You can read its CPR principles here but they include prohibiting the use of corporate treasury funds for election funding, and adopting existing disclosure standards such as the Center for Political Accountability’s code of conduct on political spending. Among the early adopters are IBM, Danone USA and Pirelli Tire North America.

“I think the principles can really raise awareness and give us a pause to reflect on the purpose of lobbying,” Maureen Kline, Pirelli’s vice-president of public affairs and sustainability, told Moral Money.

“I think there’s a debate out there about whether the corporate world should be less political or use its power for good. With great power comes great responsibility so I think it has to be a bit of both.” (Andrew Edgecliffe-Johnson)

ECB puts new climate demands on ABS originators

Amid a banking crisis and an interest rate rise, the European Central Bank this week added pressure on banks to collect information on climate change risks as they put together asset-backed securities.

European countries issued €20.3bn of ABS in 2022, down from €30bn, in 2021, according to S&P. ABS, which mostly comprise auto and consumer loans, typically lack climate information for underlying assets and complicate classification for the EU’s sustainable finance disclosure regulation, the ECB and European Securities and Markets Authority said in a statement this week.

“While mandatory disclosure requirements are not yet in place, the ECB and the ESAs are nonetheless calling on originators [banks] to already collect, at the time of loan origination, the data that investors need to assess the climate-related risks of the underlying assets,” the duo said.

This ECB statement builds momentum for climate action. In February, the ECB said it would continue to buy green bonds in the primary market as it starts to wind down its asset purchase programme this month.

The ECB said it would apply “a stronger tilt” towards bond issuers with better climate performance. “This approach will support the gradual decarbonisation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris agreement.”

The ECB’s climate action in the past two months alone has been quite striking when compared with the Federal Reserve’s. In January, chair Jay Powell said the Fed would not become a “climate policymaker”. Even with Democrats in charge in Washington, the Fed is lagging behind the ECB on climate concerns. (Patrick Temple-West)

Smart read

Rich nations are not looking good in the palm-oil dispute, writes FT columnist Alan Beattie. The Financial Times said this week that the UK was planning to eliminate its tariffs on Malaysian palm oil as the price of entering the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the jewel in Britain’s otherwise unimpressive post-Brexit crown of trade agreements.

“The EU and other rich economies are failing to address concerns that their actions are arbitrary and lacking in good faith. There’s a case for environmental regulations on trade, but Brussels is making it poorly at the moment, and bringing the whole idea into disrepute.”