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BlackRock has declined a ton of talk about socially motivated investing. A Texas-based federal judge says the $11 trillion asset manager isn’t making enough exits.
In this case, American Airlines pilots sued the airline over its use of BlackRock as its pension administrator. By simply choosing BlackRock’s funds, American Airlines is impermissibly pursuing “non-financial” goals such as climate action, the pilot said. The judge agreed that the airline had breached its duties to the pilots and had been “dishonest” with the participants in the scheme.
BlackRock was not an official defendant, but make no mistake: the giant fund and its boss, Larry Fink, are effectively on trial. The judge cited various comments by Mr. Fink over the years about the role of business in broader society. However, the plaintiff invested only in generic funds. Under the judge’s logic, pensioners whose employer chose BlackRock could argue that their interests were ignored.
Mr. Fink was trying to keep BlackRock ahead of changing winds at the intersection of business and society. Since that turn, BlackRock has sought to present a more neutral position amid significant backlash over its size, influence and putative views. Abandoned climate change advocacy groups. It also provides greater flexibility for clients to vote on proxies themselves.
Mr. Fink’s unprecedented discussion of climate change and the social responsibility of being stewards of money seemed revolutionary at the time. But BlackRock’s consistent defense has been that long-term profits come from long-term thinking, and that maximizing the interests of stakeholders maximizes the interests of shareholders.
In the American Airlines case, the court focused on a high-profile proxy battle at Exxon in 2021. The fight involved a climate-focused fund seeking the removal of a sitting director over its belief that drilling companies are failing to account for climate change. BlackRock supported the rebels and won a board seat. The judge found that such support was solely about a social agenda.
The court has not yet determined the amount of damages. It is not yet clear whether the plaintiffs will be able to prove how BlackRock’s alleged leanings toward environmental, social, and governance-based investments harmed their profits. Still, the cold effect is probably real. If plan participants are disappointed with their returns, they can simply take their money elsewhere. Many conservative states are already cutting ties with BlackRock.
Fink is used to brickbats, but this is a serious escalation. And as court observers have noted, other cases before other judges have seen funds sue customers for failing to account for climate change risks or, for example, non-diverse boards. They may take the seemingly opposite view that they have let them down.
For now, BlackRock realizes it’s not making anyone happy. No matter what happens to Earth, Larry Fink’s body temperature must be rising by the minute.
sujeet.indap@ft.com
