Activists Are to Working to Decarbonize Public Pension Funds

BlackRock is the nation’s largest financial asset management company and Republican state leaders are on the offensive.

The company’s sin? BlackRock leadership stated that climate change was a long-term threat and that the company would invest in projects that reduce emissions.

In January, West Virginia declaredIt was preventing the company from managing state pension funds. Texas passed legislation prohibiting any firm from using fossil fuels to manage state assets. March saw the adoption of legislation. Arkansas State TreasurerBlackRock managed money market accounts that drew $125,000,000 in March. This was followed by a letter last yearA dozen Republican state treasurers threatened to seize funds from banks that had not fulfilled their commitments under the Paris climate agreement to stop financing fossil fuel investments.

Despite Chairman Larry Fink’s bold statement, in his annual letter to CEOs, that “every government, company, and shareholder must confront climate change,” BlackRock pledged in a February letter to Texas officials, “We will continue to invest in and support fossil fuel companies.”

As a company holding investments in nearly every major firm in the nation, BlackRock’s change of tune did not amount to an actual change in policy — since the firm hadn’t actually divested from anything — but it still sounded like a defeat to progressives.

In reality, however, the reason red states are scrambling for such legislation and making these threats is because it is losing the fight. Activists from the grassroots are mounting disinvestment campaigns against fossil fuel companies all across the country. BlackRock and Vanguard and State Street, two of the largest top managers of retirement funds, have vowed to meet this demand. use their voting powerIn corporate governance to support a shift to a net emission economy over time with the investments that they manage.

The problem for the fossil fuel sector is that while pro-fossilfuel red-state officials trumpet the benefits, the problem is that the $600 billion in pension and other financial assets they oversee, that’s a tiny fraction of the $5.6 trillionin public pension funds, and related assets 6,000 separate public-sector retirement systemsAll across the country

“The assets of those who believe in climate change dwarf the assets of those that don’t,” observes David Walleck in dismissing the Texas and West Virginia threats, noting that his organization, For the Long Term, works for 17 state treasurers committed to addressing climate change who collectively manage $2 trillion in assets — and that doesn’t even include New York State, for example, and many other state, city, and country funds allied with his organization’s efforts.

Red-state officials’ public tantrums reflect the remarkable achievements of climate activists in pushing fundamental shifts through the financial sector, even though the steps taken by BlackRock and other organizations are only the beginning.

There is now a network of state-based activists who recognize that they can exercise real power over pension assets controlled by the states — and they don’t need the permission of Joe Manchin or anyone else at the federal level to use that power.

There is a straight line to this point from a march in New York City in June 2017 — the day Donald Trump announced that he was pulling out of the Paris Agreement on climate change. New York Communities for Change (NYCC), an organizing group for local communities, led a multiracial crowd demanding that the city abandon the fossil fuel industry. NYCC had recently launched a Climate Change & Inequality Campaign, partly in response to Superstorm Sandy and the clear threat climate change posed to the city’s future — and the worsening of racial and economic inequality in the wake of such climate catastrophes.

New York Attorney General Tish James — who was then New York City’s public advocate — spoke that night in her role as the first trustee of the city pension funds to come out in support of fossil fuel divestment. Rallies, die-ins at usually staid pension fund meetings, and other direct actions led to the city trustees’ voting in 2018 to completely divest from fossil fuels, making New York City’s $267 billion pension system the largest fund in the country at that point to join the divestment movement.

The movement to divest from fossil fuels began on college campuses and in the philanthropic community. However, it continued to grow steadily into the 2010s. “NYC was first big US pension fund to move,” explains the NYCC campaign’s firebrand organizer, Pete Sikora, “and it is at the heart of global capital: important in size and in a city where fossil fuel is funded.” By creating international headlines, says Sikora, “NYC asked other cities to follow and it mainstreamed divestment. Larger and larger and more and more funds began to follow.”

New York State announced that it would immediately sell all shares in companies contributing to global warming by 2040, and its $268 billion in assets in direct investments in fossil fuels. This was in line with London and other international jurisdictions. Beyond dumping specific fossil fuel stocks — which it is moving to do within a few years — State Controller Thomas DiNapoli is working toward a completely carbon-free fund by 2040.

“That affects the whole portfolio,” argues Sikora, “which affects car companies and the utility industry; it is demanding far-reaching changes from all companies by 2040. [And it]It hammers all the companies to change their behavior. That is an extremely important thing.” New York has been joined by multiple states backing mandates of various levels of toughness, one of the most forceful being by the California State Teachers Retirement System, which has committedSimilar timelines were used to decarbonize the $328 billion in investments.

Because red states have never provided decent pensions for their public employees — “which is sad for everyone in those states,” as Sikora notes — “blue-state pension funds are just far bigger pools of capital” and bring more firepower to any financial fight.

Why Target BlackRock

BlackRock is in trouble because activists want to see public pension funds invest their trillions in climate-friendly assets in a more sustainable manner. They also want to use these public assets to make changes. Tens of TrillionsBlackRock and other private financial institutions have spent millions of dollars. That is the only way we can begin to reduce the carbon footprint of the estimated $250 trillionworldwide in financial assets

NYCC would join partly as an offshoot from its successful New York City City divestment campaign. #BlackRocksBigProblem, a network of US and international organizations, including the Sierra Club, Amazon Watch, and the Union of Concerned Scientists. It was established in 2018 with grassroots partners like NYCC and Climate Finance Action in Boston.

Many people won’t even recognize BlackRock’s name, but investors know their iShares Exchange-Traded-Funds and other low-cost index mutual funds that sit in their IRAs and 401Ks. Founded in 1988, BlackRock now manages $10 trillion in assets, meaning it could buy Apple, Microsoft, Google, and Amazon outright—and still have money left over to buy Tesla as well. However, because it is an index-fund company, BlackRock has a small share of almost all major companies. BlackRock has a 5 percent or greater stake in more than 97 percent of the companies that make up the S&P 500 index. Combined with other asset managers like Vanguard and State Street, those three firms control 25 percent of shares voting in corporate director elections at S&P 500 companies.

“BlackRock is one of the few transnational government-level entities that can affect geological history,” says Sikora. While he admits that the firm has made steps in the right direction, “Right now, overall, it is using that power to light the planet on fire by pouring money into oil and coal. BlackRock needs to change to save the planet.”

BlackRock is also targeted because many assets it manages come from public pensions. It relies on providing a range services and consulting to governments. BlackRock was hired by Federal Reserve to help manage its large corporate buying program in the midst of the pandemic.

While the concentrated power of big financial management firms is certainly cause for concern, as the American Economic Liberties Project argued in its report, “The New Money Trust,” this concentration also means that when blue-state pension funds act together, they can leverage that power across the financial landscape — which is precisely why the red-state treasurers are in such a meltdown.

“There is a powerful institutional customer lever that public pensions have: They hire BlackRock and Vanguard to run sleeves of their portfolio,” says Mary Ceruli, who led Climate Finance Action’s organizing in Boston, working with the Sierra Club and college divestment groups and SEIU, to move the Massachusetts public pension funds in an activist direction. “It sends a signal when public pension funds express concern on BlackRock not being active enough on climate change or other issues.”

BlackRock isn’t only concerned about losing access $5.6 trillion in public retirement funds that make annual payments for retired public employees, the so-called defined benefits plans. It also wants to access the $2.6 trillion flowing through the 401K-style “defined contribution” plans administered by state retirement programs, thereby creating relationships directly with individual retirees. This gives states additional leverage.

Participation in public retirement programs is a sign that asset management firms are able to demonstrate prudent management in the public eye. State pension funds can label firms as “enemies of sustainability” and they have every reason to be concerned. Individual investors — especially the millennials whom every firm wants to attract as new lifetime customers — overwhelmingly report (70 percent of respondents in one survey) taking into account companies’ environmental practices along with other social issues when deciding where to invest their money. Although many correctly express the belief that such social investing reduces market risk and improves returns, more than half say they are willing to sacrifice some performance on investments to achieve such goals — including 75 percent of millennial investors..

Climate change activists are especially focused on Target Date Funds which adjust the mix stocks and bonds as workers approach retirement. Approximately two-thirds save there. BlackRock’s rapid response to activists is a testament to its ability to quickly adapt. exclude Russian assetsAfter the invasion of Ukraine, their core index funds were withdrawn. They argue that firms could also remake them to be climate-safe.

What climate change activists and now allied public pension fund managers are also demanding is that BlackRock and other firms use their control of shares in firms to change those firms’ behavior voting on shareholder resolutions and board elections to make management operate their firms in a more climate-friendly manner.

And they are seeing results. “Three years ago, BlackRock and other asset management firms said they didn’t use their shareholder votes,” explains Myriam Fallon, a media spokesperson for #BlackRocksBigProblem. “Now they actively vote. They voted out three of four Exxon board member last year in favor of climate-friendly members. They haven’t gone as far as we want, but they have gone forward.” BlackRock and other firms have signed onto a 2050 net zero emissions commitment, and BlackRock is preparing to present a 2030 goal.

BlackRock’s commitments encourage other firms to reconsider new investments in fossil fuel companies. David Carlin, a financial analyst, recently stated that this is a good sign. argued in Forbes, “Fossil fuel mining, exploration, and extraction all are capital intensive activities that demand constant access to capital. If capital costs rise, or the supply of capital decreases, projects can become uneconomical. can see their valuations fall.”

Private equity firms are increasingly abandoning new fossil fuel startups. In contrast to 2015 when the majority of private equity went into conventional energy funds, the majority of private equity was now going to renewable funds. Only a small portion of the traditional fossil fuel investments were affected. If BlackRock and other firms say they won’t be buying such assets in a few years, many investors are asking “who will buy this business in five years’ time,” says Philippe PolettiArdian’s head of the buyout department.

Climate change activists want to use every public asset to make every firm decarbonize. They have formed alliances with US private pension funds that manage $3.6 trillion as well as the $35 trillion global pension funds in developed countries. These funds can have a significant impact on global financial markets if they are properly mobilized.

Climate change activists also want to tap another large pool of financial assets, the insurance industry. “Insurance companies both assess risk and are asset managers. Think about flood insurance or folks losing home insurance due to wildfires,” notes Moira Birss, another leader at #BlackRocksBigProblem and climate director at Amazon Watch. “Insurance regulation happens almost entirely at the state level, so that is a place where state action could have an impact.” Globally, insurance companies hold $40 trillion in assets—$9.7 trillion by US insurance companies alone — to cover anticipated losses, losses that will only grow if climate change is not checked. State-based activists have ample opportunity to encourage sustainable investments by insurance companies and the assets they manage.

Activists in multiple states are still trying to get public pension funds to move off the sidelines and to make it more ambitious for the rest. Part of what’s needed is to have more progressives recognize the power of these state-controlled pensions.

“One thing I’ve noticed over the years,” argues NYCC’s Sikora, “Climate activists put an enormous effort into moving US government action and policy, but for the same energy, you can put a lot of heat on Wall Street. I do think pension funds are an underused, important lever for positive social change.”

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