Once you have good intentions, people are not satisfied again. Large American investors, such as BlackRock, Blackstone and Carlyle, are increasingly setting stricter requirements for the companies they invest in, in the areas of the environment, corporate governance and social responsibility. But in the US, and then mainly from the Republican angle, they are now under fire for precisely that reason.
According to this new group of critics, investors, who have long been accused by yet other critics of only looking for returns, are more likely to ‘woke‘ behaved: too much concerned with saving the world and not enough with making money. And that way they would be violating their financial ‘duty of care’ to customers.
It’s not just blaming. In a number of ‘red’ American states (often states where a lot of fossil energy is still being extracted), politicians are currently working on concrete rules to for example prohibit local pension funds from doing business with these investors, if issues such as climate and racial equality weigh too much in their investments (such legislation has already been passed in some states). At the federal level, meanwhile, Republicans in Congress are trying to prevent the Biden administration from allowing pension funds to account for these so-called environmental, socialthere governance (ESG)-criteria.
For investors, the measure seems to be gradually full. In their annual reports published in recent weeks, they speak out sharply against this growing ‘anti-sustainable investment sentiment’, which is being propagated in the US by, among others, the prominent Republican governor of Florida, Ron DeSantis (possibly a presidential candidate). in the 2024 election) and Republican Senate Majority Leader Mitch McConnell.
The anti-sentiment would now even pose a serious threat to investors’ finances, because turnover is jeopardized by customers who leave and the proposed legislation makes it more difficult to attract new customers. BlackRock CEO Larry Fink said earlier that local governments in Republican states raised about $4 billion from the asset manager last year because of ESG concerns.
The British business newspaper Financial Times dug through a number of annual reports and on Wednesday drew up the collective concerns for BlackRock, Blackstone, KKR, T Rowe Price, State Street, TPG and Ares – some of the largest asset managers in the world – among others. In short, the anti-ESG sentiment would have grown into a “material” risk by now. That is significant. They now seem to see it as a financial threat of considerable proportions. That’s news. To outsiders it may still sound shrouded, but to investors this is their way of saying: enough is enough.
It looks like a struggle for the investors involved. A spokesperson for BlackRock, which is also active in the Netherlands, says that the asset manager has been “the subject of campaigns over the past year suggesting that we are either ‘too progressive’ or ‘too conservative’. He emphatically places the American developments in the context of the ‘culture war’ that is raging there: the alleged struggle of ordinary Americans against an elite who are said to have gone ‘climate mad’.
At the same time, the spokesman downplays the impact of the anti-sentiment on BlackRock somewhat. “While the actions of some U.S. elected officials have made headlines, they do not provide a comprehensive picture of our clients’ investment needs.” He points out that BlackRock received nearly $400 billion net in client funds for investment last year, including nearly $230 billion from clients in the US. So they don’t see any problems for the time being, he wants to say.
The Dutch pension administrator PGGM, which manages the investments of the Zorg en Welzijn pension fund (a total of about 228 billion euros) and is one of the largest investors in the Netherlands, is watching developments in the US with some concern. The pension administrator reinvests part of its money with American asset managers and PGGM wants to be a frontrunner in ‘responsible’ investing. Jaap van Dam, head of investment strategy at PGGM, says: “It is still too early, but in the long term these kinds of sentiments can lead to consequences. We will then have to ask ourselves whether those investors can still do their job well for us.”
He praises the fact that investors are now speaking out so explicitly. “They are ready to fight.” But he is less sure about who will win the battle in the end. Plans to curb investors’ ESG investments have also fizzled out in some Republican states. But at the same time, he hears that banks in certain (Republican) states are now being rebuffed by politicians if they try to organize their loan portfolios in such a way that they are ‘in line’ with the climate goals agreed in Paris in 2015. “That’s a pretty broad attack.”
He does not yet see similar sentiments emerging in Europe. According to Van Dam, Europe is heading in a completely different direction, with investors emphatically having to make a substantial contribution to achieving climate goals, for example. “There’s a big contrast.”
But, he also says, Europe often follows the US with a few years delay. “And that gives food for thought.”
A version of this article also appeared in the newspaper of March 2, 2023