Sustainable investment strategies are meeting with fierce criticism in Republican states in the US. Investment money is flowing out of ESG funds, and a major Swiss bank has lost out in a bond transaction.
The world's largest asset manager has lost more than $1 billion in asset management business in US states controlled by Republicans. That's because Republican politicians are upset with Blackrock's ESG investment policies, where founder Larry Fink is pushing companies to cut their carbon emissions, and threatening to drop laggards from actively managed funds.
Fund Outflows
In Republican states, this investment policy is currently not sitting well at all and is increasingly being targeted. Speaking to the «Financial Times» (behind paywall), South Carolina state treasurer Curtis Loftis said he would withdraw $200 million from Blackrock funds by the end of the year. Separately, Louisiana's treasurer had announced he would withdraw $794 million.
Utah is also looking to pull $100 million from Blackrock funds, according to media reports, as does Arkansas, which is said to have withdrawn $125 million this year. State treasurers typically oversee cash management, bond operations, and certain aspects of state pension funds. Blackrock manages five of the 20 largest US sustainability funds, according to Morningstar.
Climate Policy Criticism
The moves come just weeks after the world's largest asset manager was heavily criticized for its stance on climate issues. In August, attorneys general from 19 states accused Blackrock of actively pressuring companies to phase out fossil fuels to the detriment of states dependent on the oil and gas industry.
To be sure, compared to the roughly $8.5 trillion Blackrock manages, the money pulled from funds is a small fraction. Still, that is putting a strain on the asset manager, compelling it to take countermeasures to defend its reputation for climate protection while highlighting its investments in energy companies. Blackrock recently launched a website to do precisely that. Among other things, it says in bold letters: «We DO NOT boycott the energy industry».
Setback for UBS
At UBS, the former advertising slogan «Don't Mess with Texas» has taken on a completely different meaning. Originally an 80's-era advertising slogan with the aim of reducing pollution and littering of the streets, the phrase is now more emblematic of financial companies that are at loggerheads with the state due to their ESG policies. UBS landed on a blacklist in Texas, where it is branded as a boycotter of the domestic oil industry, as also reported by finews.com.
«Bloomberg» (behind paywall) on Friday reported that UBS's underwriting department was expelled from the group handling Texas's largest-ever municipal bond transaction. The issuer, Texas Natural Gas Securitization Finance Corp, announced a newly assembled underwriting syndicate for the $3.4 billion transaction without UBS, according to the report.
Financial Stability Risk
New laws in Texas and other US states that penalize financial firms for «boycotting» oil and gas threaten global financial stability by encouraging risky lending to energy companies, said Sarah Bloom Raskin who served as US Deputy Treasury Secretary in the Obama administration. The former Fed governor warned that large banks would be forced to continue lending to energy companies at current levels even if there were good reasons to reduce risk management.
