Texas subpoenas BlackRock for documents on ESG strategy

The controversy over investment titan BlackRock's focus on environmental, social and corporate governance (ESG) issues is heating up, after Texas state lawmakers subpoenaed the company's records in a probe into the issue.

The legislative subpoena, issued last month and reviewed by DailyMail.com on Wednesday, commands BlackRock to hand over documents related to its ESG strategy for a December 15 hearing of the Texas Senate's Committee on State Affairs.

It follows mounting criticism of BlackRock from Republican lawmakers and state officials, who accuse the firm of putting social and political goals ahead of earning returns for investors and retirement savers. 

Texas State Senator Bryan Hughes, the Republican chair of the Texas committee, said that requests for the documents had been issued to BlackRock and three other major financial firms in August, but that 'some have provided more than others.'

'The Committee needs these documents to uncover the extent to which these firms have been playing politics using Texans’ hard earned money,' Hughes told DailyMail.com in a statement.

'We will not allow these firms to continue to use Texans’ money to force a narrow political agenda. They have a legal duty to put their investors’ interests first, and we intend to make sure they do,' he added. 

Regarding the upcoming hearing, a BlackRock spokesperson told DailyMail.com: 'We look forward to continuing our engagement with the Committee to share BlackRock’s work on behalf of millions of investors.' 

The Texas legislative subpoena requests a wide range of documents related to BlackRock's decision making and research into ESG investments and climate initiatives.

The ESG movement, and BlackRock's involvement, has recently become a rallying cry for Republicans on Capitol Hill, who are pushing for legislation to protect retirement and investment accounts from asset managers who prioritize ESG.

Meanwhile, an activist investor is taking aim at BlackRock with the opposite criticism, accusing longtime CEO Larry Fink of 'hypocrisy' on ESG issues for failing to push agenda-driven investing far enough.

Activist fund Bluebell Capital Partners wrote in a letter to Fink that BlackRock has 'alienated clients and attracted an undesired level of negative publicity' with the firm's ESG strategy.

The criticism from London-based Bluebell is the opposite of recent accusations by some Republican US lawmakers and state officials, who accuse BlackRock and Fink of putting sustainability goals ahead of earning returns. 

According to Bluebell, BlackRock is not going far enough in pursuing its ESG goals and is failing to divest quickly enough from investments in fossil fuel, including coal.

A number of states have announced plans to divest their state pension funds from BlackRock

Bluebell's letter warns of 'reputational risk (including greenwashing risk) to which BlackRock under the leadership of Larry Fink have unreasonably exposed the company.' 

Bluebell has roughly $250 million in assets, and holds only a small stake in publicly traded BlackRock, which invests more than $8 trillion. 

Giuseppe Bivona and Marco Taricco, Bluebell's partners, on November 10 wrote to Fink, who regularly advises world leaders and has taken a high-profile role in advocating for ESG investing, that they want to see someone else in the job.

The hedge fund also wants BlackRock to 'initiate a strategic review of (its) stance on ESG' and adopt other governance changes.

Bluebell owns 0.01 percent of BlackRock, which has a market capitalization of $106.7 billion, a person familiar with the stake said.

Bluebell is known for waging campaigns against prominent companies with very small investments, including one at Belgian chemical company Solvay where it wanted the board to address an environmental issue at its Rosignano, Italy, factory.

Bluebell said BlackRock has failed to support its requests.

'In the past 18 months, Bluebell has waged a number of campaigns to promote their climate and governance agenda,' a BlackRock spokesman said. 

Giuseppe Bivona and Marco Taricco, Bluebell's partners, wrote in a letter to Fink that BlackRock has 'alienated clients and attracted an undesired level of negative publicity' with the firm's ESG strategy

'BlackRock Investment Stewardship did not support their campaigns as we did not consider them to be in the best economic interests of our clients.'

Bluebell was founded in 2019 and has taken on companies including GlaxoSmithKline, Glencore, Vivendi and Danone, where it engineered the ouster of former CEO Emmanuel Faber.

'Fink clearly has political ambitions because it is not his job as chief executive of BlackRock to dictate energy policy,' Bivona told Reuters in an interview.

Fink's name has often been floated as a possible Cabinet member in Washington and the firm's executives are often consulted by policy makers.

While Bluebell said BlackRock's positions have hurt it with clients, the company reported pulling in $250 billion in net new assets in the first three quarters of 2022.

The total returns on ESG bonds dropped 15.2 percent from September 2021 to September 2022, a larger drop than the broader stock market fell

The Wall Street Journal first reported Bluebell's campaign at BlackRock.

Fink pens an annual letter to CEOs in January and has pushed corporations to see beyond profits.

BlackRock is Bluebell's most high-profile target yet, coming at a time more investors are paying attention to ESG factors.

Last week, Florida's chief financial officer said his department would pull $2 billion worth of its assets managed by BlackRock, the biggest such divestment by a state opposed to the asset manager's ESG policies.

Shares in BlackRock are down roughly 30 percent this year, underperforming the benchmark S&P 500 Index.