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BlackRock has been turning down the volume on talk of socially motivated investing. For one Texas-based federal judge, the $11tn asset manager is not pulling back enough.
In this case, an American Airlines pilot sued the carrier over its use of BlackRock as a pension manager. Merely by selecting BlackRock funds, the pilot said, American was impermissibly pursuing “non-pecuniary” goals, such as combating climate change. The judge agreed that the airline had breached its duty to pilots and been “disloyal” to plan participants.
BlackRock was not a formal defendant, but make no mistake: the fund behemoth and its boss Larry Fink were effectively on trial. The judge cited various Fink comments over the years about the role of business in broader society. But the plaintiff was only invested in generic funds. Based on the judge’s logic, any pensioner whose employer chose BlackRock could argue their interests have been disregarded.
Fink had tried to put BlackRock ahead of shifting winds at the intersection of business and society. Since those winds shifted back, BlackRock has tried to portray a more neutral stance — amid a huge backlash against both its size, influence and putative views. It has ditched climate advocacy groups. It is also allowing its clients greater flexibility to vote their proxies themselves.
Fink’s previous unprecedented discussion about climate and social responsibility as a money manager seemed revolutionary at the time. But BlackRock’s consistent defence has been that long-term profits were driven by long-term thinking and that maximising stakeholder returns maximised shareholder returns.
In the American Airlines case, the court focused on a high-profile proxy fight at Exxon in 2021 where a climate-focused fund sought to replace incumbent directors over the belief the driller had failed to account for climate change. BlackRock supported the insurgent and it won board seats. The judge determined that such support was merely about a social agenda.
The court has yet to determine damages. It’s not yet clear that the plaintiff, can show how BlackRock’s supposed tilt towards environmental, social and governance-based investing harmed profits. Even so, the chilling effect will be real. If plan participants are disappointed with returns they can simply take their money elsewhere. Many conservative states have already attempted to cut ties with BlackRock.
Fink is used to brickbats, but this is a serious escalation. And as legal observers have pointed out, other cases before other judges could now take a seemingly opposing view: that a fund had let clients down by failing to account for climate change risks or, say, non-diverse boards of directors.
For now, BlackRock finds itself having made no one happy. Whatever happens to the planet, Larry Fink’s temperature must be getting higher by the minute.
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