The opinions expressed here are those of the author, a columnist for Reuters. This column is part of the weekly Reuters Sustainable Finance newsletter, which you can sign up for here
By Ross Kerber
Dec 18 (Reuters) - We already knew that BlackRock's global customer base brings it conflicting pressures from clients, but developments in the past week drive home the point for the world's top asset manager.
How well BlackRock manages the clashing wishes of the people who own the $11.5 trillion it runs will be key for its long-term outlook as investing becomes a culture-war flashpoint.
On one hand BlackRock BLK.N does business with many Republican-led U.S. states where politicians have railed against the use of environmental, social or governance $(ESG.NZ)$ considerations for investment decisions.
Most recently, the Indiana Public Retirement System voted unanimously on Friday to remove BlackRock as manager of a global inflation-linked bond portfolio valued at $969 million as of October.
The vote came after State Treasurer Daniel Elliott found the company has an ESG commitment, triggering a 2023 law's requirements for the $47 billion pension system known as INPRS to cut off the business.
But BlackRock probably does even more business with Democratic-led states and international bodies that want it to show more concern for issues like climate change and workforce diversity. Many investors view the matters as potential business risks or opportunities.
Documents released on Friday by a U.S. congressional committee shed light on the pressure BlackRock gets from those quarters.
A March 26, 2020, memo from shareholder advocacy group Ceres, for instance, stated that BlackRock "was influenced" to join the investor coalition Climate Action 100+ by a decision of Japan's Government Pension Investment Fund to withdraw $50 billion from the company.
Also, the memo states, British pension provider Scottish Widows "insisted on putting CA100+ into their asset management contract with BlackRock."
"To have impact, we do not need hundreds of asset owners to wield their influence; we may only need a few," Ceres' memo states.
The memo is labeled "DRAFT." It was written at a time when the Boston-based organization was trying to build up support for the CA100+, which aims to push highly polluting companies to cut back their carbon emissions. BlackRock joined the group in 2020, then stepped back earlier this year, citing independence concerns as the CA100+ pushed members to take stronger actions.
Ceres and Scottish Widows did not respond to requests for comment. A spokesperson for the Japanese government fund declined to comment.
BlackRock stated concerns for independence even as it joined the CA100+ in 2020, and runs a "voting choice" program to devolve some proxy voting power to clients.
On the move by INPRS, a BlackRock representative said it is proud of its work for Indiana retirees and that "Despite this decision, we remain committed to Indiana and the $102 billion we have invested in the state on behalf of our clients."
Asked about the varied views of its clients, the representative said that "BlackRock acts independently and with a singular focus on maximizing returns for our clients, consistent with their choices."
ESG ABOUNDS
Fights like the one in Indiana may go on a long time. Even as INPRS was removing BlackRock from the bond portfolio, the firms in line to gain the money have their own ESG commitments including State Street STT.N and Northern Trust NTRS.N.
They fall under the law's exclusion for bank holding companies, according to a staff presentation at the INPRS meeting on Friday.
"We're following the law but I don't think we're in any better position," board member Cristopher Johnston, director of the state's Office of Management and Budget, said at the meeting, according to a recording.
Indiana's state treasurer, Elliott, a Republican who helped draft the law and also sits on the INPRS board, told me in an interview the provision is a weakness the legislature should address.
"We should tweak that so we're looking at everybody," he said.
Elliott said he acknowledges the big firms are under pressure from many sides, something he called "a difficult conundrum for the BlackRocks and State Streets of the world."
The opinions expressed here are those of the author, a columnist for Reuters. This column is part of the weekly Reuters Sustainable Finance newsletter, which you can sign up for here
(Reporting by Ross Kerber in Boston; Editing by Matthew Lewis)
((ross.kerber@thomsonreuters.com; (617) 412 0093;))
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