Can BlackRock Save the Planet? The Institutional Investors’ role in Stakeholders Capitalism

Beyond divest vs. engage: a review of the role of institutional investors in an inclusive fossil fuel phase-out

“…Dordi et al ( 2022 ), through a network analysis of global FF shareholders, argue that the Big Three are among the most influential global FF shareholders, based on the emissions associated with their investments and their centrality in the network of FF shareholders. The Big Three asset managers are publicly emphasizing their attention to shareholder engagement and stewardship, through means such as BlackRock CEO Larry Fink’s highly publicized annual letters to shareholders and CEOs, creation of ESG funds, increasing transparency into their stewardship activities, and joining sustainability-related investor engagement initiatives, such as Climate Action 100+ (Strampelli, 2020 ). One study finds an association between ownership by the Big Three (driven by inclusion of a company in a major index) and a subsequent reduction in the company’s carbon emissions, indicating some effectiveness in their environmental stewardship (Azar et al, 2021 ).…”

“…However, others argue that there are limitations in the lengths to which asset managers should be expected to act in the best interest of the shareholder (or indeed, the climate). Most passive asset managers make their money through fees rather than through investment performance and thus are ultimately motivated to expand their base of assets under management (and thus, their fees), rather than to improve the underlying economic performance of those assets (Braun, 2020 ; Strampelli, 2020 ). The cost of shareholder engagement is likely not worth the marginal economic gains that could result from such engagement, an argument backed up by the relatively small ESG staff that the Big Three employ.…”

“…The cost of shareholder engagement is likely not worth the marginal economic gains that could result from such engagement, an argument backed up by the relatively small ESG staff that the Big Three employ. For example, Strampelli ( 2020 ) points out that BlackRock spends just 0.15% of their collected asset management fees on stewardship activities (p. 14), while Griffin ( 2019 ) highlights that they employ a stewardship team of just 36 people to research and vote on over a hundred thousand shareholder proposals each year (p.10). Gunningham ( 2020 , p. 11) cites research from the NGO InfluenceMap, which finds that only 2 of the top 15 global asset managers engage ‘strongly and consistently’ with companies on alignment with the Paris Agreement.…”

“…With the growth in passive investing (see 3.3.1), indices and index providers will play an increasingly influential role. Indices can be created on an ad hoc basis by investors themselves, which has often been done to create options for ‘socially responsible’ funds (Strampelli, 2020 ). However, many large funds and ETFs track standard third-party indices, such as the S&P 500 or Russell 3000.…”

Appearance or substance of Stewardship and ESG reporting? The challenges of translating ‘commitment’ into tangible outcomes

“…Azar et al (2020) suggest that the main motivation for the "Big Three" investor engagement is that these large investors believe that reducing CO 2 emissions increases the value of their portfolios. Strampelli (2020) also highlight that if shareholder objectives are not aligned with those of their managers, it is unlikely that investment fund managers could actually be incentivised to pursue sustainability policies that are responsible for a negative impact on profits, especially over the short term. The authors cast doubts on whether institutional investors can perform a "public" function for the benefit of society at large and replace governmental or regulatory intervention.…”