Blackrock: The E in ESG
For the past decade, BlackRock Chief Executive Officer Larry Fink has posted an annual letter to counterparts at the largest companies in the world. Started in the wake of the financial crisis, Fink's early letters centered on fiduciary duty and corporate governance, vital if not somewhat arcane concepts affecting investors and Wall Street.
Over the years, though, Fink has upped his game. Instead of weighing in on proxy voting and value creation, Fink last year put the market muscle of his $8.7 trillion firm behind the global movement to address climate change. In his 2020 letter to CEOs, Fink labelled climate risk as an investment risk. BlackRock vowed to end investments in thermal coal production, while launching new funds focused on net carbon reduction and committing to fully transparent sustainable investing.
The Environmental, Social and Governance movement had reached a tipping point. Sustainable investing was being mainstreamed, with BlackRock and Fink elevating net-zero emissions into a fiduciary obligation guiding stock and bond investments. In 2020, with the world battling COVID-19 and raging social unrest, ESG funds overall booked $51 billion in new investments, exponential growth that was double the previous year's total and ten times more than 2018.
"I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives ... It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response."
-- BlackRock CEO Larry Fink
For PR, environmental stewardship has emerged as a central pillar in communications and media plans for companies, causes and political candidates. In practical terms, the sometimes heated discourse around climate change and sustainability will involve managing communications advancing ESG initiatives, while addressing calls for increased regulation, charges of widespread greenwashing, and claims that the ESG movement has been swept up in "marketing hype and PR spin."
What is the E in ESG?
The White House under the Biden administration maintains an online Briefing Room, posting presidential proclamations, transcripts of speeches and press conferences, and media briefings with administration officials. A week after President Biden took office, one of the first postings by the White House press office publicized an Executive Order revitalizing the U.S. response to the climate crisis, along with a fact sheet and transcript of a press briefing with administration officials.
The press materials touched all the bases on climate change and the renewed U.S. commitment to the environment. The U.S. would reinstate greenhouse-gas emissions reduction targets under the Paris Agreement. A national climate task force would be created to unify the federal government's regulatory initiatives to address the emerging climate crisis. Leases enabling oil and natural gas exploration on federal lands would be curtailed. Renewable energy production from offshore wind would be doubled by 2030. Fossil fuel subsidies would be eliminated.
Beyond the emissions-reduction goals, the government would seek to conserve 30% of U.S.. lands and waterways, and create a corps of workers to restore forests, sequester carbon-emissions on farms, and improve access to recreation. The federal government committed to purchasing sustainably generated electricity and zero-emission vehicles -- with a catch. The vehicles would have to be Made in America, by workers paid union scale or represented by a union. Beyond that, the president kicked off a campaign to revitalize communities seeking to reverse the ecological impacts from decades of reliance on coal mining, oil and gas exploration, and coal-fired power generation,
What is the E in ESG? Clearly, the big E is the Environment. But it could just as well be the Economy. And, at times, the Election. Why?
"Because, as President Biden has often told us, when he thinks of climate change, his first thought is about jobs. And it should be, because people in this country need a job, and this is about making that happen in the most creative and significant way that the federal government can move forward. And we’re going to make sure that nobody is left behind, and I’m not just talking about communities, in terms of environmental justice, but workers as well.
-- National Climate Advisor Gina McCarthy
From a PR perspective, the natural linkages between Environment, Economy and Elections pose significant challenges and compelling opportunities. Activist causes will seize opportunities to gain support -- and supporters -- in their push for climate action. Candidates will frame out their commitments -- in some cases, to established carbon-generating industries under siege in the evolving climate wars. And companies will need to be strategic in navigating the reputational risks posed by both past business activities and their response to the climate-change clarion call.
In August 2021, the Wall Street Journal reported that the former head of Deutsche Bank's asset-management business, DWS Group, was wildly overstating its sustainability efforts, a practice known as greenwashing. “As a firm, we have placed ESG at the heart of everything that we do,” the firm said in its annual report. But only a fraction of the firm's $540 billion in assets under management that were labelled as ESG investments were actually run through the firm's internal ESG Integration process, which confirms sustainability commitments.
And environmental activists often set the bar higher than corporate executives, creating the potential for backlash when companies announce sustainability initiatives. Last year, for example, banking giant JPMorgan Chase tapped into national press coverage of its annual shareholder meeting to announce a ban on new lending to oil and gas projects in the Arctic, along with limits on financing for the coal industry. Meanwhile, protesters gathered outside the company's New York headquarters to demonstrate against JPMorgan's continued financial support to carbon-intensive industries.
“Chase has done very little with this announcement to take the heat off them. If anything, the cynical nature of it will convince people to join in this fight.”
-- Bill McKibben, co-founder of the environmental group 350.org
"The cynical nature of it." McKibben's comments to the Financial Times crystallized a challenge for corporate PR. How will organizations -- especially manufacturers, utilities, energy giants and financial institutions at the core of the carbon-driven economy -- find an authentic voice as extreme storms and wildfires fill the headlines, and the world accelerates toward zero net emissions?
McKibben's criticism of the corporate response to climate change is not reserved for environmentalists and social activists. A year after moving to alter the investment landscape with a commitment to support climate action, BlackRock's former head of sustainable investing said the firm was "duping the American public." Tariq Fancy, in a USAToday op-ed, said the firm was engaged in greenwashing, deceiving investors into believing that Wall Street actually cares about addressing climate change, and that investments in stocks and bonds that support sustainability are a solution to the crisis.
"As the former chief investment officer of Sustainable Investing at BlackRock, the largest asset manager in the world with $8.7 trillion in assets, I led the charge to incorporate environmental, social and governance into our global investments. In fact, our messaging helped mainstream the concept that pursuing social good was also good for the bottom line. Sadly, that's all it is, a hopeful idea. In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community."
-- Tariq Fancy, former BlackRock investment officer
If ESG really is evolving into a PR spin job for corporate America, has it worked? BlackRock is peddling social consciousness and its efforts to save the planet. But, when the opening and closing bells ring on Wall Street, the firm is in the investment business. BlackRock sells iShares, a brand of exchange-traded funds that enable their clients to diversify investments through more than 300 indexed funds.
If you understood that last sentence -- exchange-traded funds, diversify investments, indexed funds -- you may be among the 15% of U.S. consumers who have heard of BlackRock and the firm's iShares offerings. While that number may seem low, 15% of the U.S. adult population equates to about 38 million people. And exchange-traded funds represent a $4 trillion corner of the investment sector.
Bottom line, has BlackRock's sustainability commitment paid off in terms of branding and sales? Absolutely. For years, as you can see in the chart below, consumer awareness of BlackRock hovered around 10% and 12%. Since Larry Fink's CEO letter mapping out "A Fundamental Reshaping of Finance" was posted in early 2020, consumer awareness for BlackRock and the firm's iShares brand has trended upward by about 30%.
For any PR client, that's a win.
Let's talk about this.
From your perspective,
is the Environmental, Social and Governance movement real,
or just PR spin?
Why? Why not?
Start the discussion by posting a comment below.
Case Study assignment:
Has your company posted an ESG statement?
Dig it up. Include details in your Backgrounder.
Deadline: October 20th before class.