The global awareness in the fight against climate change has prompted numerous investment institutions in declaring the participation of the divestment movement. Initially the largest investment institution in the global coal industry, BlackRock also joined the large array of 117 investment institutions in February 2020 that declared on the removal of the coal industry for their investment portfolios, and pledged to transform into a company that will adjust its investment portfolios by eliminating 25% or above revenue that comes from thermal coal. Has BlackRock fulfilled such pledge?
In a nutshell, yes. Although many radical environmentalists are criticizing the company’s sluggish pace, BlackRock had voted ‘no’ during the first half of 2020 against 50 enterprises that lack progress in the response to climate change, including US oil giant Chevron, Exxon Mobil, and German energy company Uniper. BlackRock is also currently reviewing 191 enterprises, with relevant action initiating in 2021.
What adjustments has BlackRock implemented so far? The colliery and coal-fired industries have borne the brunt, where the 630K of shares that BlackRock used to hold in Peabody Energy back in 2018 have now been reduced to 500K, and the figure will only continue to plummet.
Carbon reduction and environmental protection may not be the only reason for BlackRock’s withdrawal from Peabody Energy. Coal-fired power generation is currently faced with insufficient economic benefits compared to the severe competition from other power generation methods, which leads to an increasingly conserved attitude for financial intuitions on both loan and insurance, thus resulting in the depleting demand for Peabody Energy’s thermal coal, and a higher capital cost in obtaining loans. In summary, the stock price of Peabody Energy will drop due to the money that the company has been losing. Although BlackRock’s withdrawal of shares may be of purely investment considerations, the company did vote ‘no’ in the annual shareholders’ meeting, which provided additional pressure in Peabody Energy’s lack of efforts in carbon reduction.
The 12.8% equities that BlackRock held in Contura Energy, another colliery company, had been withdrawn by 1/3 in August 2020.
BlackRock also believes that the carbon reduction plan from German energy company Uniper is almost nonexistent, and expressed that it will conduct a voting to ask the board of directors that is related to sustainability energy in Uniper to be fully replaced, if the board of directors has not been replaced upon a comprehensive resignation after the merger with Finnish energy company Fortum.
BlackRock Unable to Execute Arbitrary Decision
BlackRock has indeed encountered certain implementation difficulties, and one of them being the inability in arbitrary decision since the company is operating on a large sum of capital for its clients. The company had completely withdrawn 25% of revenue coming from coal enterprises in May 2020 within the decidable range of capital, though clients may request an investment in index fund, which may comprise of coal enterprises.
BlackRock will be exerting its influential power as a shareholder in stipulating targets of carbon reduction for oil and gas enterprises that it has invested in, and claimed that it will be applying pressure on 110 companies during the second half of 2020. In spite of that, BlackRock has not been extremely rigorous. Take Shell, which BlackRock holds 7% of shares in, for instance; BlackRock believes that the 2050 zero carbon emission planning proposed by Shell is more than adequate, thus voting ‘yes’ for the company, and ‘no’ against the carbon reduction measures that were brought up by the shareholders.
In terms of green energy enterprises, BlackRock has increased its shares in Israeli solar inverter and monitoring system supplier SolarEdge to 10.3%. On the other hand, BlackRock had already invested in various major renewable energy giants, such as Ørsted and Vestas for wind energy, as well as SunPower, First Solar, and Vivint Solar for solar energy. The company also has shares in large electricity companies, including RWE and SSE. As electricity companies aggressively march into the field of renewable energy, BlackRock’s investment in green energy will also elevate accordingly.
From the perspective of the radical environmentalists, BlackRock is merely going with the flow by selling investment that was already losing money, and that the company has not spent extra efforts in carbon reduction since major enterprises are bound to march into the field of renewable energy based on economic benefits, thus the tens of billions of investment that is still in the fossil fuel industry makes BlackRock the unforgivable sinner. However, BlackRock needs to be held accountable for the clients, not the environmentalists. In addition, despite the unsatisfied demand for the radical environmentalists, BlackRock has indeed been contributing to the cause, and just a mild implementation with the company’s scale of capital would cause a substantial impact to the market.
(Cover photo source: shutterstock)