The world’s largest institutional investor with US $6.5 trillion in assets is a global leader in financing forest destruction, new report says
With the Amazon going down in flames, a report released on August 30, 2019 claimed that BlackRock Inc — the world’s largest institutional investor with $6.5 trillion in assets under management (AUM) — was heavily invested in companies most responsible for the destruction of tropical forests in the Amazon and around the world.
BlackRock’s Big Deforestation Problem, released by Friends of the Earth US, Amazon Watch and Profundo, a Dutch financial research firm, claimed the New York-based BlackRock was among the top three shareholders in 25 of the world’s largest publicly listed deforestation-risk companies — companies active in producing and trading soya, beef, palm oil, pulp and paper, rubber and timber. The corporation was also among the top 10 shareholders in 50 of the world’s top deforestation-risk companies.
BlackRock’s investments in select companies were primarily through index funds — and the holdings are on the rise. In 2014, 80 per cent of BlackRock’s deforestation-linked commodity holdings were through index funds; by 2018, it had increased to 94 per cent. This trend potentially increases financial risk, as ESG-related issues are not measured, managed or mitigated by market indexes.
ESG (Environmental, Social and Governance) funds have been linked to recent deforestation, land rights conflicts, and child and forced labour. The Norwegian Government Pension Fund has blacklisted several of these companies due to ongoing environmental and human rights violations.
According to the report, BlackRock’s holdings in these sectors increased by more than $0.5 billion since 2014. “The data is clear: from the Amazon to the great forests of Africa and Southeast Asia, BlackRock is a global leader in financing forest destruction,” said Jeff Conant, senior international forest program manager with Friends of the Earth US, the report’s lead author.
“As long as this financial behemoth continues to unconditionally back the world’s most destructive agribusiness companies, the forests of the world, and consequently the climate and the rights of forest-dwelling people, will continue to go up in flames. BlackRock is literally reaping profits as the world’s jungles burn,” he added.
A growing number of institutional investors understand the urgency of addressing climate-related risks. In June 2019, 477 institutional investors (with $34 trillion in AUM — nearly half of the world’s invested capital) urged world leaders to dramatically increase efforts to meet Paris Agreement goals.
While the greatest attention regarding the climate crisis is justifiably given to the energy sector, deforestation accounts for some 15 per cent of global greenhouse emissions, and industrial agriculture is responsible for around 80 per cent of deforestation — making a rapid transition away from commodity-driven deforestation crucial to addressing the climate crisis.
Fiduciary duty to clients is one factor driving institutional investors to address deforestation and the larger climate crisis. A growing body of literature argues that the asset managers holding proportionately substantial shareholdings must consider short- and long-term impacts of social and environmental risk factors when carrying out their fiduciary duty.
“BlackRock claims that its hands are tied by index funds. It is wrong. BlackRock can follow the lead of other global asset managers and make change for the good of the rainforest, the climate, and of its customers by shifting investments out of companies wrecking the planet, and applying maximum pressure to change company behavior,” said Moira Birss, Finance Campaign Director of Amazon Watch.
“The fires currently raging in the Amazon clearly demonstrate the risk that agribusiness expansion poses for the Amazon rainforest, indigenous peoples, and the global climate. By expanding investments in the very industries complicit in that destruction, BlackRock is emboldening right-wing President Jair Bolsonaro to continue his quest to raze the Amazon for profit-making,” Birss added.
Earlier this month, the Intergovernmental Panel on Climate Change reported that deforestation and destructive land use practices are responsible for nearly a quarter of greenhouse gas emissions. But rather than taking action to address the risks of catastrophic climate change, BlackRock’s investments in deforestation have been on the rise, the new report reveals.
While leading pension funds such as CalPERS recognised deforestation as a material investment risk, BlackRock has reportedly taken no such actions, despite the public statements by CEO Larry Fink that companies need to have a “social purpose”.
“Responsible stewardship is about more than just nice public statements. It is about aligning your investment strategy with broadly accepted environmental and social standards,” said Ward Warmerdam of Profundo. “It is about implementing this strategy by making demands of the companies you are invested in. And it is about using your significant leverage to ensure that your demands are met and irreversible environmental and social damage is prevented, in addition to fulfilling your fiduciary duty.”
BlackRock has also come under fire for its disproportionately large holdings in coal, oil and gas at a time when the finance sector is facing growing climate risk.
DTE has sought BlackROck's comment, but is yet to recieve any.
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