BlackRock downgraded by UBS over rising ESG investment risks

BlackRock’s focus on Wall Street’s latest craze – environmental, social and governance (ESG) investing – has become risky business for the world’s largest asset manager, an analyst said recently. UBS.

Brennan Hawken, an analyst at the bank, downgraded BlackRock, Inc. (NYSE:BLK) stock from Buy to Neutral and lowered the stock price target from $700 to $585 on the growing pullback of its ESG efforts.

“We are downgrading BLK to Neutral due to environmental pressure on earnings and the risk of the company’s ESG positioning,” he said in a note, adding that BlackRock could face increased regulatory scrutiny and scrutiny. the possibility of a decrease in fund management activities.

“BLK’s early and aggressive adoption of ESG principles in its fund management and shareholder proxy activities has positioned the company as an ESG leader in our view. However, as performance deteriorates and ESG-related political risk increases, we believe the potential for loss of fund mandates and regulatory oversight has increased recently.

According to Market Beat, the medium the analyst rating is a “moderate buy,” with a price target of $776.46.

But could CEO Larry Fink see the Wall Street titan coming under pressure on sustainable investing?

BlackRock recently launched a new webpage focused on getting its ESG investments “in the spotlight”, dispelling some of the common misconceptions and taking back control of its corporate messaging.

BlackRock CEO Larry Fink speaks during a forum at the opening of the Clinton Global Initiative (CGI), a meeting of international leaders in New York on Sept. 19, 2022. (Spencer Platt/Getty Images)

“The energy industry plays a critical role in the economy and, on behalf of our clients, BlackRock has invested $170 billion in US public energy companies,” the company said. wrote. “We also partner with energy companies and start-ups to fund new technologies and innovations that will power the global economy now and in the future. Despite these investments, BlackRock has recently been accused of “boycotting” oil and gas companies.

The company offers a long list of ESG-focused exchange-traded funds (ETFs) that focus on climate change, data privacy, accounting practices, product responsibility and ethics.

The GOP is not interested in ESG investing

In recent weeks, a plethora of Republican officials have disengaged from BlackRock over its ESG policies.

Last week Louisiana Treasurer John Schroder wrote a letter (pdf) to Fink, explaining that the state would liquidate about $800 million of the financial institution’s exchange-traded funds (ETFs), money market funds and mutual funds within three months. Schroder cited BlackRock’s ESG standards which favor green energy over conventional fossil fuels.

“Your blatantly anti-fossil fuel policies would destroy Louisiana’s economy,” he said. “This divestment is necessary to protect Louisiana from actions and policies that would actively seek to cripple our fossil fuel sector. In my opinion, your support of ESG investing is inconsistent with Louisiana’s best economic interests and values. I cannot support an institution that would deprive our state of the benefit of one of its strongest assets.

Caroline from the south announcement Monday that the state would divest itself of its approximately $200 million in BlackRock holdings by the end of the year.

“I will not allow our financial partners to undermine my fiduciary responsibility to maximize investment returns while accepting a prudent level of risk for the benefit of our citizens. It is imperative that we stand up to BlackRock and resist pressure to simply align ourselves with their left-wing worldview,” Treasurer Curtis Loftis explained.

Other US jurisdictions have begun withdrawing tens of millions of dollars in public funds from BlackRock, including Arkansas, Utah and West Virginia. In August, Texas and 18 other states write a letter to Fink threatening to withdraw public funds from these banks due to BlackRock’s ESG objectives.

“Our states will not stand idly by as our retirees’ pensions are sacrificed for BlackRock’s climate agenda. Now is the time for BlackRock to make it clear whether it truly values ​​our states’ most valuable stakeholders, our retirees. current and future, or risk losses even greater than those caused by BlackRock’s chimerical climate program,” the letter states.

Write in a editorial on the Fox Business Network website, Nebraska Treasurer John Murante claimed that BlackRock and other asset managers “have lost credibility when it comes to ESG investing.”

“Wall Street companies market themselves by referring to solid objects – a black rock. For companies making ESG commitments, the appropriate image would be a black box. Asset managers cannot have it both ways: either they maximize financial returns or they push ESG and net zero,” Murante said.

While Florida hasn’t targeted BlackRock, Governor Ron DeSantis and state Board of Directors (SBA) trustees have approved a move to remove ESG criteria from 186 state pension funds. billions of dollars.

“Corporate power has increasingly been used to impose an ideological agenda on the American people through the perversion of financial investment priorities under the euphemistic banners of environmental, social and corporate governance and diversity, inclusion and equity,” the governor said in a statement. statement in August.

But it’s not just BlackRock that Republican-led states are turning away from because of so-called responsible investing. West Virginia, for example, announced that other financial institutions would not be eligible for state banking contracts, such as Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

Despite the pushback in a host of Republican-led states, a recent report of PricewaterhouseCoopers argued that the demand for ESG investing outstrips the supply. The study found that nearly 90% of institutional investors think asset managers should be more proactive in crafting new ESG products. Additionally, nearly 80% of US investors plan to increase their allocations to ESG financial products over the next two years.

BlackRock shares fell around 2.7% on Friday to trade below $551. Since the start of the year, the company has lost 40% of its market value, or about $55 billion.

Andre Moran

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Andrew Moran has been writing about business, economics and finance for over a decade. He is the author of “The War on Cash”.