Tisha’s Insights

BlackRock’s Real 2022 Expectations, Part 1

January 27, 2022 Tisha Schuller

For the last several years, BlackRock has set the pace for how investment firms will drive ESG performance at portfolio companies. (See our 2020 and 2021 notes on BlackRock.) Larry Fink’s letter to the CEOs of BlackRock’s portfolio companies in January made headlines for its focus on relationships with employees and pushback on divestiture.

At Adamantine, we are advising our clients to look more deeply at some of the subtler elements of Fink’s letter and combined 2022 guidance in these three Blackrock reports: (1)BlackRock Investment Stewardship: Proxy voting guidelines for U.S. securities, (2)BlackRock Investment Stewardship: 2022 Policies Updates Summary, and (3)BlackRock Investment Stewardship: Global Principles.

BlackRock developments matter because they demonstrate how ESG pressures are translating into investor expectations. But with so much happening in the news, how does the CEO letter translate into actions you need to take in 2022? Read on for the framing we’re giving our clients. (We’ll look at the stewardship guidance in a subsequent Both True.)

Both of these things are true:

  • A superficial read of Larry Fink’s letter might be interpreted as: Stay the course, no big deal.
  • A look beneath the surface reveals that oil and gas companies need to take substantial action.

The situation

Fink’s letter, titled The Power of Capitalism, is unsurprisingly a celebration of the ability of companies to drive positive change. Yet the letter holds surprises, starting with this sentiment:

Capital markets have allowed companies and countries to flourish. But access to capital is not a right. It is a privilege. And the duty to attract that capital in a responsible and sustainable way lies with you. (emphasis mine)

We who work in an industry battling a divestment-oriented world are bound to find Fink’s assertion interesting, if not outright challenging. It evokes the concept that Triple Crown Resources CEO Ryan Keys conveyed on the Energy Thinks podcast recently: E&P companies need to evolve with the needs of society. Historically we have viewed opposition to oil and gas as a political problem. Instead, we are increasingly seeing the challenge as our burden of action — to meet the needs of society, attract its capital responsibly, and contribute in unique ways. It’s an empowering reframing. And it’s not about maintaining the status quo.

Also unsurprising, Fink characterizes the unanticipated speed of the energy transition succinctly:

It’s been two years since I wrote that climate risk is investment risk. And in that short period, we have seen a tectonic shift of capital. Sustainable investments have now reached $4 trillion.Actions and ambitions towards decarbonization have also increased. This is just the beginning – the tectonic shift towards sustainable investing is still accelerating.

Yet he continues with a twist:

Whether it is capital being deployed into new ventures focused on energy innovation, or capital transferring from traditional indexes into more customized portfolios and products, we will see more money in motion. Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led? (emphasis mine)

And so, as the march to net zero continues, Fink separates portfolio companies into camps as leaders and followers.

BlackRock itself has been under enormous pressure to divest. Interestingly, Fink in this letter takes divestment in oil and gas explicitly off the table. Yet this isn’t the gift handed to oil and gas companies it may initially appear to be. Fink distinguishes between companies that will go extinct — “the dodos” — and those who will reinvent themselves — “the phoenixes.” In this comparison, there is no happy ending even for a successful dodo.

Foresighted companies across a wide range of carbon intensive sectors are transforming their businesses, and their actions are a critical part of decarbonization. We believe the companies leading the transition present a vital investment opportunity for our clients and driving capital towards these phoenixes will be essential to achieving a net zero world. (emphasis mine)

So let’s not be fooled by Fink’s pushback against his own critics — he is clearly saying that companies leading the transition are those worthy of investment.

Most notable to our team at Adamantine: BlackRock is creating the opportunity for its clients to inform BlackRock’s casting of their proxy votes. “We are committed to a future where every investor — even individual investors — can have the option to participate in the proxy voting process if they choose,” Fink writes. This declaration may seem like superficial transparency, but here’s what it means to our clients: Public opinion — which has driven so much change in the ESG landscape — will now be that much closer to a direct proxy vote. Check out our special report on proxy voting, Proxy Season Turns Up the Heat on Oil and Gas Companies, for a flavor of how directly this affects public-sector companies.

At first read, Fink’s letter seems to continue BlackRock’s ESG trajectory with some solid pushback to its activist critics. But here’s what I see in the letter instead:

  1. a strong positioning preference for companies leading the decarbonization transition, and
  2. increasing direct influence of BlackRock’s stakeholders on companies through proxy voting.

Seize the day

We are advising our clients — whether BlackRock is a significant shareholder of theirs or not — to read these tea leaves carefully. The ESG pressures are not abating. Investors will increasingly demand that carbon-intensive companies like yours clearly and convincingly articulate their value proposition in a decarbonizing world. Because pragmatic investors such as BlackRock understand that we will need fossil fuels for a long time, they are going to continue to invest. Yet BlackRock and the others will favor those companies that actively acknowledge the energy transition and clearly position their businesses to decarbonize.

We would love to help your business envision its clear, convincing, investment-worthy decarbonization strategy. Hit reply to learn more about our services. If you would like to recommend Both True to a colleague, they can subscribe here.

To the phoenixes,



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Both of These Things Are True

By Tisha Schuller