According to a report from S&P, large advisers like Blackrock, that are known for offering lower fees and reliable returns, are making it difficult for conservative state leaders to justify moving their investments away.
North Carolina Treasurer Dale Folwell got high praise from fellow opponents of environmental, social and governance (ESG) measures in December 2022 when he called on BlackRock Inc. CEO Larry Fink to resign, saying the asset manager was “using its market power to coerce the world’s companies to transition to carbon net-zero by 2050”.
During an August 9 interview, Folwell said BlackRock has held North Carolina’s retirement systems “under siege for over five years” and had politicized the money because of the firm’s ESG investment policies.
North Carolina joined 11 other states with newly enacted anti-ESG laws in 2023; however, the state’s business with BlackRock has continued.
“We are reducing our reliance on foreign supply chains while delivering high-quality jobs throughout the communities that have helped power the nation for generations.”
Jennifer M. Granholm, US Secretary of Energy
And several other Republican states that have boycott lists targeting specific investment firms have yet to make any actual changes to reflect their stances. Despite its bank boycott list, Texas’s largest pension system, Texas Teachers, with $185bn assets under management (AUM), continues to invest with BlackRock and now says it “will consider ESG factors that are material to long-term returns and levels of risk,” so long as the investments are made “prudently and in accordance with fiduciary and ethical standards”.
It will simply cost too much to switch advisers. North Carolina found that replacing BlackRock with a firm that does not consider ESG risks would cost taxpayers $8.4m a year in higher fees.
Sustainable investing
In the first half of 2023, sustainable funds saw a median return of 6.9%, beating traditional funds’ 3.8% and reversing their underperformance in 2022, according to a new Sustainable Reality report from the Morgan Stanley Institute for Sustainable Investing. Investor demand also remained strong as sustainable funds’ AUM reached record levels.
“Our mid-year update shows the resilience of ESG funds with a return to outperformance after a challenging 2022,” says Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing Jessica Alsford. “Investors are increasingly turning to sustainable funds with sustainable AUM now at approximately 8% of total AUM globally.”
In 2023, a rebound in growth stocks – which prioritize long-term potential – has especially helped sustainable funds’ relative outperformance.
By asset class, sustainable equity funds posted the strongest gains, showing a 10.9% median return and outperforming traditional equity funds’ by 8%, with fixed-income outperformance being slimmer – sustainable funds coming in at a 3.8% median return versus traditional funds at 2.2%.
Regionally, Europe continues to outpace other geographies in terms of sustainable AUM and fund counts. The majority (89%) of total sustainable funds are based in Europe, compared to 10% in North America and less than 2% in all other regions.
Saving critical minerals
Critical minerals are essential to the domestic production of clean energy technologies, like wind turbines, solar panels, and electric vehicle.
The Bipartisan Infrastructure law, enacted in November 2021, aims to reduce America’s dependence on offshore critical minerals, 80% of which are imported.
Texas’s largest pension system, Texas Teachers, with $185bn assets under management (AUM), continues to invest with BlackRock.
Using funds allocated under the law, the U.S. Department of Energy (DOE) announced last week that up to $30m will be set aside to help lower the costs of the onshore production of rare earths and other critical minerals and materials from domestic coal-based resources.
The effort is focused on extracting these materials from coal, coal waste, and associated by-products, while creating well-paid jobs in communities that have historically produced fuels and electric power from fossil energy resources.
“Thanks to these transformative investments, we are reducing our reliance on foreign supply chains while delivering high-quality jobs throughout the communities that have helped power the nation for generations”, said US Secretary of Energy Jennifer M. Granholm.
