Failing to spot trends and lagging the market can backfire on even the biggest institutional investors.
Climate change and the switch away from fossil fuels to cleaner burn technology has never been that far away from the headlines for at least a decade.
But somehow, the strategic decision makers at BlackRock, one of the world’s largest and influential fund managers, managed to miss what was going on.
The firm’s mistake cost investors $90 billion over the past decade, claims a report from the Institute for Energy Economics and Financial Analysis, a US think tank.
The experts at the institute argue BlackRock ignored serious financial risks, jeopardised investor cash unnecessarily and routinely fails to protect money in funds from long-term investment risks.
Oil companies burned through billions
BlackRock is the world’s largest fund manager with $6.5 trillion of mostly other people’s money under investment.
The report highlights that three-quarters of the lost $90 million was burned by just four investments in oil companies ExxonMobil, Chevron, Royal Dutch Shell and BP.
Another $19 billion went up in smoke with General Electric
And the fund manager is accused of failing to practice what it preaches.
Only 0.8% of BlackRock’s funds are invested with environmental, social and governance (ESG) funds, despite the firm regularly publicising a commitment to sustainable investments.
Meanwhile, the board of directors has six out of 18 members with strong connections to fossil fuel companies that generates a potential conflict of interest.
World’s largest investor must lead the way
Tim Buckley, IEEFA Director of Energy Finance Studies and co-author of the report, argues BlackRock should demonstrate stronger leadership.
“As the world’s largest universal owner, Blackrock wields an enormous amount of influence and shoulders a huge responsibility to the wider community,” he said.
“It has the power to lead globally to address climate risk, yet to-date it remains a laggard.
“Blackrock continues to sink investor funds into fossil fuel holdings in stark contrast to recent moves by the trillion-dollar Norwegian government pension fund global which announced its divestment from oil and gas.
“If the world’s largest investor makes it clear the rules have changed, then other globally significant investors will rapidly replicate and reinforce these moves, reducing stranded asset risks for all.”