The world's largest asset manager can do more around sustainability although progress has been made on a number of fronts, a group says.

BlackRock, the world’s largest asset manager with $6.32 trillion of client money (at end-March) wields a massive stick in global markets. And campaigners for so-called sustainable investing say the US-listed firm has made progress on several fronts but needs to push harder.

The comments from the World Resources Initiative, issued a few days ago, come at a time when wealth manager regale the media and clients about environmental, social and governance-themed (ESG) investing. The trend plays to worries about human-caused global warming, pollution, the plight of poor people around the world, corrupt governments, and other issues. This publication intends to look at ESG-themed wealth management in coming weeks.

This publication understands that BlackRock will respond to the points raised by the WRI in due course.

Sustainability is all the rage (although arguably not when it comes to governments’ massive debt piles, which is odd).

The term “sustainability” in this context typically refers to practices such as energy use that is deemed not to harm the planet – with a focus on renewable energy sources such as solar power, wind farms, geothermal sources and tidal energy that don’t pump carbon dioxide into the atmosphere. (More controversially, this leaves open the question of whether nuclear energy is actually going to be more, not less, important.) It also goes wider to embrace areas such as water use, agricultural practices and recycling.

World Resources Institute Authors Giulia Christianson, Ariel Pinchot, and Jack McClamrock say in a report that “among US asset managers, BlackRock has the highest absolute holdings in thermal coal and oil and gas reserves, through its investments in companies. It is also the world's largest investor in companies that are building new coal power capacity, with $11 billion invested in such companies.”

The authors say this carbon exposure is driven by the firm’s index-tracking passive funds. The authors argue, however, that BlackRock could stop offering products that track indices with high carbon footprints, giving examples such as the iShares Select Dividend ETF and the iShares MSCI Germany ETF.

The authors say BlackRock may still offer such products if clients want them, but the firm should “stop including products with high carbon footprints compared to benchmarks among its `sustainable’ offerings, as is the case with, for example, its iShares Global Clean Energy ETF and iShares MSCI EAF ESG Optimized ETF.

The WRI report was written after BlackRock chief executive Larry Fink said in his 2018 annual letter to CEOs that companies must make positive contributions to society. The WRI authors say Fink’s comments “turned a few heads, including ours”.

“A year later, we've noticed some encouraging signs of progress - but much of this action is happening on the margins of the firm's core business,” they say.

The firm has progressed in widening the range of sustainable investment products; built internal ESG capacity, such as through important hires and added to research in these fields, the WRI says.

But the WRI authors claim that despite some “notable progress”, sustainable investing is not yet “mainstreamed” in to BlackRock’s core business practices. It complains about the firm’s “weak voting record” on climate-related disclosure; it said some of BlackRock’s sustainable funds don’t merit that title because some of them carry shares of fossil fuel companies.

“For a financial behemoth like BlackRock, changing course and pushing against the tide of market norms is no easy feat, to be sure. We would never expect this to happen overnight,” it continues.

The WRI comments demonstrate what a difficult issue sustainability can be. For a massive fund manager such as  BlackRock, its ability to move on issues such as this resembles an oil tanker (excuse the pun) where the vessel takes time to respond to a turn on the wheel. And even then, there are issues such as “orphan assets” to consider – if firms divest rapidly from coal and oil, there’s the fate of employees in such industries to consider. (Telling a coal miner that his job will be taken away is not a conversation some end-investors want to have.) These are complex questions.