Between a rock and hard place

Unilateral divestment from fossil fuel companies might work for student politics, but BlackRock has shown it is no way to run the world’s largest asset manager. It is easy to be cynical about BlackRock’s motives for arguing that keeping its fossil fuel shares is all part of the green agenda, but chief executive Larry Fink is right that denying capital to the energy majors could ultimately prove to be an own goal for the environment as well as the balance sheet. With soaring prices for coal and gas and no end in sight to demand, particularly from Asia, the fiduciary imperative is for investment funds to stay involved. If funds like BlackRock, which manages $US10 trillion ($14 trillion), vacate the market, investment will simply shift to private capital, principally in Asia. This will have a distorting effect not only on global energy markets but also on the bigger geopolitical picture.

In practical terms, to paraphrase Mr Fink’s “phoenix” analogy, innovation is likely to come from industry players who want to stay in business for the long term. Mr Fink has led the push for more corporate responsibility in investments in light of climate change, promising to sell most of BlackRock’s shares in coal companies in his letter to clients two years ago. External estimates last year were that BlackRock still holds some $US85bn in coal companies around the world. Mr Fink’s latest letter to shareholders provides a more nuanced picture, noting that net-zero carbon emissions would not happen overnight. In Mr Fink’s words, “We need to pass through shades of brown to shades of green”. With high energy prices starting to impact political stability and industrial efficiency, notably in Britain and Europe, Mr Fink warns that “governments and companies must ensure that people continue to have access to reliable and affordable energy”.

This is in stark contrast to the utopian agenda of climate activists who are pushing to end the use of fossil fuels at any cost. Activists have this week opened fire on a consortium of banks including NAB, ANZ and Westpac for lending $US3.49bn to Global Infrastructure Partners for its purchase of a 49 per cent stake in the Pluto LNG Train 2 from Woodside. BlackRock’s Australian company investments include a 5.92 per cent stake in Woodside Petroleum, valued at about $1.44bn, plus a 1.5 per cent stake in coalmining giant Whitehaven Coal worth about $45.2m. As politicians everywhere are learning, the transition to a net-zero world is a promise that is easier to make than deliver. The corporate sector is starting to draw the same conclusion.