Larry Fink’s annual letters carry a lot of clout. As CEO of the world’s largest asset manager, BlackRock, with over $10 trillion in assets under management (AUM), his annual open letters to investors set the tone for investors, companies, and – until recently – was required reading for environmentalists.

Mr. Fink’s prior letters shaped the investment communities’ focus on climate and ESG with lines like “climate risk is investment risk” in 2020 and “it is not ‘woke’ (stakeholder capitalism). It is capitalism” in 2022.

This year’s letter is different.

Fink’s BlackRock is at the center of the political backlash against ESG (environment, social, and governance). Republican-led states have just this week launched a cease and desist against them for pushing ESG factors on portfolio companies and have removed $13+ billion from the firm. Although that is only 0.1% of BlackRock’s overall AUM, it has made headlines and created an unwanted controversy. In fact, last year, Fink said he’s no longer using the term “ESG” because it is being politically “weaponized,” and he’s “ashamed” to be part of the debate on the issue.

Not surprisingly, this year’s letter, “Time to rethink retirement,” did not mention the now “toxic term” – ESG – which has become the Lord Voldemort of BlackRock (he who shall not be named). Instead, the letter focussed on pensions and increasing retirement ages.

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However, he did cover what he called “energy pragmatism.” He argues that to ensure energy security while decarbonizing will extend the reliance on fossil fuels – “even the most climate-conscious among them saw that their long-term path to decarbonization will include hydrocarbons, albeit less of them, for some time to come.”

Adding that although decarbonization and the energy transition is a “mega force,” it has to be “fair,” “Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive.”

Then, as if talking directly to those who believe BlackRock is boycotting oil and gas, he says, “BlackRock has more than $300 billion invested in traditional energy firms… for one simple reason: It’s our clients’ money. If they want to invest in hydrocarbons, we give them every opportunity to do it – the same way we invest roughly $138 billion in energy transition strategies for our clients.”

This Smart Read article is contributed by Tim Mohin, Global Sustainability Leader, BCG. Every week ESG News delivers smart commentary from ESG practitioners and experts to unpack issues of the week. Submit your ESG Smart Read to [email protected]

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