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BlackRock’s Exit Leaves Net Zero Initiative in Limbo

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Stockholm (NordSIP) – The election of Donald Trump to another term in the White House has fuelled the Republican’s momentum against sustainable investing and ESG. Following a range of state anti-ESG initiatives and a prominent lawsuit against asset managers who claimed to be investing sustainably, American financial institutions have been leaving international sustainable investing networks in droves.

This trend appears to have come to a head this week with the Glasgow Financial Alliance for Net Zero (GFANZ) announced several changes to its goals and structure and culminating with the decision by the Net Zero Asset Managers’ (NZAM) initiative to pause and review its activities in the aftermath of BlackRock exiting the initiative.

BlackRock Exits NZAM

Now, BlackRock appears to have become the latest organisation to have decided to take this step, with reports that the world’s largest asset manager has decided to leave the Net Zero Asset Managers’ (NZAM) initiative. The announcement sought to emphasise two aspects. On the one hand, BlackRock acknowledged that political pressure was a factor in its decision. On the other, it argued that its membership NZAM did not affect asset management.

“Approximately two-thirds of our largest clients around the world, including 100% of our largest clients in Europe, have made net zero commitments for their organizations. As a result, we have participated in various climate finance organizations over the last few years. However, our memberships in some of these organizations have caused confusion regarding BlackRock’s practices and subjected us to legal inquiries from various public officials. Following our routine review of our continued participation in these groups, we are writing to notify of our formal withdrawal from the Net Zero Asset Managers (NZAM) initiative,” Philipp Hildebrand, Vice Chairman at BlackRock and Helen Lees-Jones, Global Head of Sustainable & Transition Solutions at BlackRock, informed the asset manager’s clients in an email. [emphasis added]

“Our participation in NZAM did not impact the way we managed client portfolios. Therefore, our departure does not change the way we develop products and solutions for clients or how we manage their portfolios. BlackRock’s active portfolio managers continue to assess material climate-related risks, alongside other investment risks, in delivering for clients,” Hildebrandand and Lees-Jones added.

NZAM’s initial response appeared to push back against this decision.“We are disappointed to see any investor withdraw, but as a voluntary initiative, we respect any individual decisions signatories take. Climate risk is financial risk. NZAM exists to help investors mitigate these risks and to realise the benefits of the economic transition to net zero. NZAM has successfully supported investors globally as they have sought to navigate their own individual paths in the energy transition in line with their fiduciary duties and clients’ long-term financial objectives. NZAM looks forward to continuing to play this constructive role with investors around the world,” NZAM said in reaction to BlackRock’s exit on January 10th.

NZAM in Limbo

However, NZAM was not done digesting BlackRock’s exit. Three days later, the organisation struck a much less combative tone. Acknowledging the wider aforementioned greenhushing, NZAM announced it would launch a “review of the initiative to ensure NZAM remains fit for purpose in the new global context.

“As the initiative undergoes this review, it is suspending activities to track signatory implementation and reporting,” NZAM added. In an example of prominent greenhushing, the initiative decided to “remove the commitment statement and list of NZAM signatories from its website, as well as their targets and related case studies, pending the outcome of the review.”

Should Nordics Review Mandates?

In an article considering the views of Nordic asset managers, IPE noted that the ongoing withdrawal of American asset managers from international sustainable investing networks could hinder their ability to hold on to mandates from Nordic asset owners who value sustainable factors.

“AP3 is in regular dialogue with our service providers. They shall implement our guidelines and exclusions. The assets ultimately sit on our balance sheet and we are responsible for our own engagement work and voting. BlackRock’s decision to leave NZAM will not affect our relationship. We regularly review our relationships and this is one of many factors that we will consider going forward,” Fredric Nyström, Head of Sustainability and Governance at AP3, tells NordSIP.

Considering the latest bout of exits from international sustainability initiatives, the Anthropocene Fixed Income Institute (AFII) compares the syndication fees banks have generated from fossil fuel financing to those generated by green bond issuances. “Deselecting a low-ranking bank as a counterparty should come with no, or minimal, cost to the investor or issuer, but provide an important feedback effect to the bank in question,” say Ulf Erlandsson, Founder and CEO of the AFII, and Josephine Richardson, Head of Research at the AFII .

Image courtesy of John Matychuk via unsplash

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