Investment

BlackRock’s Fink Says Energy Transition Remains an Investment “Mega Force” Despite Political Pushback

Investment giant BlackRock will continue to view the global transition to low carbon energy sources as one of the most powerful drivers of capital market opportunity and risk, even as the energy transition becomes “more contentious in the U.S.,” according to the firm’s Chairman and CEO Larry Fink’s annual letter to investors.

While describing the energy transition as a “mega force,” Fink stressed a continued need for a role for traditional hydrocarbon-based energy sources, particularly in light of a heightened global focus on energy security, and appeared to address claims from U.S. politicians that the firm “boycotts” energy companies, stating that “BlackRock has never supported divesting from traditional energy firms.”

The letter focused primarily on the role of capital markets in addressing what Fink referred to as the mid-21st Century’s biggest economic challenges, including providing financial security for retirement for an ageing and longer-living population, and the need to build massive amounts of infrastructure as economies globally digitize and decarbonize.

Within the infrastructure theme, Fink focused mostly on energy, noting that “in my nearly 50 years in finance, I’ve never seen more demand for energy infrastructure,” driven by the twin aims of transitioning to lower-carbon energy sources and achieving energy security, referring to the need to address these sometimes complementary and sometimes competing goals as “energy pragmatism.”

The letter comes as pressure continues to build on BlackRock from anti-ESG political movement in the U.S., with the firm often in the spotlight of Republican politicians who have accused the firm of following a social agenda, or of “boycotting” and working to harm energy companies. Most notable, earlier this month, the Texas State Board of Education announced that it was pulling $8.5 billion in funds from the investment giant, with a statement by the Board’s Chairman citing BlackRock’s “dominant and persistent leadership in the ESG movement.” BlackRock has also faced criticism from environmentally-focused groups over its continued investment in fossil fuel companies.

While acknowledging that the energy transition “has become more contentious in the U.S.,” Fink said that “outside the debate, much is still the same,” with heavy investment continuing in decarbonization, noting as an example that “net-zero remains a top investment priority for most of BlackRock’s clients” in Europe.

Fink adds that the messages he receives from political leaders and grid operators are “completely opposite to what you often hear from activists on the far left and right, who say that countries have to choose between renewables and oil and gas,” with most believing that both are currently needed. Fink wrote:

“Even the most climate conscious among them saw that their long-term path to decarbonization will include hydrocarbons, albeit it less of them, for some time to come.”

The letter highlighted BlackRock’s continued investment in energy companies, noting that “BlackRock has more than $300 billion invested in traditional energy firms,” including $170 billion in the U.S., and even used Texas as an example BlackRock’s work with investors and policymakers in balancing renewable energy, which represents 28% of the state’s energy mix, with the continued need for dispatchable power, partly from natural gas, to avoid brownouts.

Fink also addresses the role of private investment in enabling a “fair transition,” by helping reduce the premium paid to switch to greener technologies, including helping to scale both large clean energy projects and to back earlier stage technologies.

One of the examples highlighted by the letter included BlackRock’s recent $550 million investment in carbon removal project “Stratos,” which is under construction by Texas-based oil and gas giant Occidental Petroleum, noting:

“The energy market isn’t divided the way some people think, with a hard split between oil & gas producers on one side and new clean power and climate tech firms on the other. Many companies, like Occidental, do both, which is a major reason BlackRock has never supported divesting from traditional energy firms. They’re pioneers of decarbonization, too.”

Fink added:

“The point is: The energy transition is not proceeding in a straight line. As I’ve written many times before, it’s moving in different ways and at different paces in different parts of the world. At BlackRock, our job is to help our clients navigate the big shifts in the energy market no matter where they are.”

Click here to access the letter.

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