BlackRock’s conversion to sustainable investing comes late in the day and may have been motivated, in part, by founder and chief executive Larry Fink’s fear that the “greenwasher” label would stick. Activists were banging on BlackRock’s door. Fink’s treaties on the importance of companies having a “purpose” had become tired. Even some clients were saying BlackRock’s claim to be “engaging” on climate issues was feeble.
So let’s not imagine that the world’s largest asset manager, with almost $7tn under its roof, has suddenly become a pace-setter. In the eyes of many big European fund management houses, most of Fink’s declarations on Tuesday will have sounded wholly conventional. Viewing climate change as “a defining factor in companies’ long-term prospects”, as he put it in his “dear CEO” letter, is a mainstream position.
Equally, though, let’s not be too churlish. BlackRock made some solid commitments. In its actively-managed portfolios, it will ditch companies that derive a quarter or more of their revenues from thermal coal, one of the most polluting energy sources. It will launch new investment products that screen for fossil fuels, thereby giving loyal clients more scope to move their money.
BlackRock will also push companies to disclose their climate risks according to widely accepted standards. It has joined the influential Climate Action 100+ group of investors, which closest rival Vanguard refuses to do. It now believes sustainable investing is “the strongest foundation for client portfolios going forward,” which is a critical statement from a fund manager with a fiduciary duty to aim to generate good returns for investors.
None of the above, however, alters the fact that BlackRock will remain the largest investor in some of the word’s biggest corporate polluters. The firm runs 70% of its money passively, meaning it owns every stock in a specified index. On that front, what matters is BlackRock’s willingness to throw its weight around and deploy its enormous voting muscle against foot-dragging managements.
Voting, however, was the area where Fink’s letter was vaguest. BlackRock has attracted a pile of criticism for its pusillanimous record on climate resolutions but the new approach merely said the firm will be “increasingly disposed” to vote against uncooperative boards. What does that mean? Fink would seem to have granted his fund managers an awful lot of wriggle-room.
Therein lies the continuing frustration. It is clearly good news that Fink is talking about “a fundamental reshaping of finance”; that will make it easier for trustees to win internal battles over investment polices. But the missing ingredient is a sense that BlackRock is willing to use its voting clout to upset powerful interests. Fink can allay that doubt by action – but “increasingly disposed” does not sound like a battle cry.
Flybe’s rescue deal needs to be transparent
Flybe is saved – sort of. Actually, it’s hard to tell from Tuesday’s late announcement whether the troubled airline secured a meaningful handout from the Treasury. A government promise to review air passenger duty “to ensure regional connectivity” is not the same as a firm commitment.
Flybe’s controlling consortium, led by Virgin Atlantic, seems to have heard enough to stick some more cash into the business to keep flying for now. The quantity was not specified but a willingness to invest was a minimum requirement to be taken seriously. Virgin & co bought Flybe less than a year ago, so it’s a bit soon for buyer’s remorse.
The government needs to tread carefully. Yes, regional connectivity is important, so there’s a case for subsidising vital routes if absolutely necessary, as happens on the London-Newquay route. But scrapping passenger duty to save Flybe itself would be absurd. And if, in fact, Flybe is receiving a state loan or tax deferral, the terms need to be transparent.
Another embarrassment for M&S
Credit rating agencies do not have a monopoly of wisdom, as we discovered in the banking crisis when they awarded top scores to mortgage-backed derivatives in the US that turned out to be toxic. All the same, Moody’s threat to downgrade the debt of Marks & Spencer to junk status is embarrassing for the retailer.
Remember it was only a year ago that M&S cut its dividend to save money and raised £600m from shareholders via a rights issue. The latter helped financed the purchase of a 50% stake in half of Ocado’s UK business, so the cash went out of the door. All the same, the deal was meant to improve M&S’s long-term earnings potential, and thus its ability to service debt.
Junk status in the eyes of a grownup rating agency would be another milestone in a long decline – and, actually, more significant than being overtaken by Boohoo in stock market capitalisation.
