‘I don’t throw power around’: BlackRock’s Larry Fink wears uneasy ESG crown

BlackRock chairman and CEO Larry Fink: ‘I – we – do not thrust power around. That is not who we are.’ Picture: John Feder

Larry Fink says he never set out to become the flashpoint for all things “woke”.

The chairman and CEO of BlackRock sits on top of the world’s biggest investment manager and in recent years has used that $US9 trillion ($13 trillion) platform to warn on climate change and push the tens of thousands of companies he invests in to move faster on decarbonisation.

But as his calls have grown louder they have drawn a stinging political attack against the giant of Wall Street. Indeed, several Republican states in the US have collectively pulled $US4bn worth of investment mandates from BlackRock in protest of Fink’s so-called “woke agenda”.

BlackRock’s Fink believes capitalism can be used as tool to help the world decarbonise. He believes climate change is an investment risk. Picture: Spencer Platt/Getty Images

The source of the ire has been Fink’s demands on environmental, social and governance standards through his annual letter sent to global chief executives.

“Do I like being a target? Absolutely not,” Fink says. “Was this something I thought as I woke up in the morning? Oh good, I’m going to be a target? This is something that is unpleasant, but this is something of a reality today,” he tells The Australian in an interview.

The criticism in the US became so heated that Fink took a more nuanced tone with his latest letter released in March on the themes of how BlackRock plans to invest its trillions. But he is not pulling back. Fink also points out he has been attacked as much from the political left as the right for his firm view that capitalism can be used as a tool for the world to decarbonise.

“My letters have become weaponised,” he says.

“When I wrote these letters, it was never meant to be political. Every letter was written to our clients and to our shareholders with the idea that we’re trying to be a voice of the long term.

“Every letter I’ve written is about trying to give our intelligence that we see as a firm, and I’m trying to impart to our clients the big macro issues we see.”

This year’s note runs to more than 20 pages and covers a lot of ground. It hits on the inflation outlook, market volatility and the US banking crisis, which he describes as “dominoes starting to fall”.

Other areas include the fallout from the Ukraine war, the “silent crisis” looming in retirement and Fink’s favourite band from the 1980s (English pop group Talk Talk).

Nor does it pull back from climate change that Fink labels as “investment risk”. But he argues BlackRock as a fiduciary is helping its clients to navigate this risk.

“I have to remind everybody – I write this in every letter – none of the money we manage is ours. 100 per cent of the money that we manage is somebody else’s money. It’s hard-earned savings.

“Our job is to provide the best intelligence to help our asset owners to invest their money safely, so they have a better financial future.

“We’re in a world today that weaponises these words – including from the media. And that’s the world we live in today. But it does not change my voice.”

Even with the loss of financial mandates from Republican states including Florida, Louisiana, Texas and South Carolina, Fink says BlackRock’s clients are backing him with new funds.

“Obviously there was a great amount of noise in the US – a few states removed money from BlackRock totalling about $US4bn. Last year we were awarded $US400bn (in new funds) of which $US200bn came from the US.

“That just identifies to me that we’re still a great voice for clients. We’re still winning more share of wallet from our clients.”

Influence

A former bond trader on Wall Street, Fink co-founded BlackRock 35 years ago. He initially moved to New York from Los Angeles where he had a modest middle class upbringing. But it was the stunning rise of BlackRock as a financial force in the early 2000s that has made Fink a billionaire.

Fink is in Sydney visiting BlackRock clients here where the fund has tens of billions invested with mandates from the big super funds as well as the Future Fund. Much of the retail exposure of BlackRock is through passive tracker funds or ETFs, which are among the fastest-growing section of investment markets. As part of its holdings it has $US3.1 trillion in ETFs globally and $US4.5 trillion in institutional mandates.

Technology can be the solution to the word’s climate issues, BlackRock’s Larry Fink says. Picture: Getty Images/AFP

His firm is so big it appears as a substantial shareholder in a swath of Australia’s biggest companies. It has nearly 7 per cent of BHP, 6 per cent of CBA, 6.4 per cent of Woolworths and 5.8 per cent of Macquarie. BlackRock’s influence runs through Wall Street where it has a massive clout in terms of shareholder votes across the S&P 500.

BlackRock is a foundation member of the UN-backed Net Zero Asset Managers Initiative, an investor group with the goal of hitting net zero emissions by 2050. Australian funds that have signed on include Macquarie, Magellan and First Sentier Investors.

Fink is quick to point out that BlackRock is not telling companies how to run their business. Indeed, nearly all of the shareholder votes it casts are in support of management. Those that it doesn’t back are mostly around governance issues over the environment.

“It is very unusual for us to vote or cancel a company. But at times we do … it’s because it is not in the best interest of our asset owners.

“We do not tell companies what to do. We always ask companies – and we may agree or disagree – where are you moving forward? How are you doing?

“I – we – do not thrust power around. That is not who we are.”

Inflation puzzle

Australia is a major investment destination for BlackRock not only for bonds and equities, but Fink is eyeing opportunities around battery storage and even frontier technology in fusion power.

“We’re very proud of our business here in Australia. We cannot be a US firm in Australia, we have to be an Aussie firm here. We have to be working with governments and local communities. We have to work with every company where we are managing clients’ money.”

He is an optimist that technology is the pathway for decarbonisation but to get there the net zero transition has to be fair for everyone. Technology represents the best chance of bringing down the cost of decarbonisation for all.

Australia and the rest of the world needs to prepare for inflation to be higher for longer. Picture: Lisa Maree Williams/Getty Images

“Can I pinpoint what that technology will be? No. But the amount of time, effort and the amount of capital that’s going into new ideas is great … there’s a lot of wonderful things that can happen.”

The last time he was here was at the end of February 2020 was as Covid-19 was spreading through Asia and the rest of the world. The pandemic has since up-ended investment markets and changed everything from how businesses source and produce goods, global immigration movements impacting labour, and of course the massive stimulus to counter the economic shock.

All this combined with new geopolitical tensions has created the inflationary cocktail that Fink believes will stay with us for longer. That means consumers and businesses need to get used to interest rates being higher and work around this.

“The term that best illustrates what’s going on is we’re going from globalisation to fragmentation and that’s inflationary.”

Hope dividend

Following a series of rolling crises from the GFC, the euro crisis, to the pandemic and now a severe inflation breakout, Fink believes leaders underestimate the invisible power of hope in an economy. Indeed this is now an area that Fink, who turned 70 last year, thinks about.

“More people are frightened of the future. Why on earth would anybody put any money in a super fund? Obviously, they’re required as a part of their job. But you put your money in a retirement fund, because you believe tomorrow is going to be better than today.”

He points out in China the savings rate has moved past 50 per cent from around 35 per cent prior to the pandemic.

“That is not a statement of hope, that is a statement of fear. That’s one of the reasons why the Chinese economy is not growing as fast as people think. And now people are re-evaluating China’s growth with more bias on the downside.

“We look at the savings rate as a really great barometer of hope versus fear. We underappreciate it as business leaders, I think also politicians underappreciate it, when people are hopeful that the future is better than today, they consume more, they save a little less, they generally have more children, because they believe that children will have a better opportunity.

“We need to focus on these issues around how to build greater confidence and greater certainty that tomorrow is going to be better than today.”