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La. treasury divests from BlackRock over ESG but spares big pension funds

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According to Market Intelligence, December 2022

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La. treasury divests from BlackRock over ESG but spares big pension funds

Louisiana joined Texas and West Virginia in booting BlackRock Inc. from its public investment funds, saying the asset manager's "blatantly anti-fossil fuel policies would destroy Louisiana's economy."

John Schroder, the state treasurer, said Oct. 5 that Louisiana had already removed $560 million in BlackRock investments from its treasury fund and that $794 million will be divested by the end of 2022. The treasurer's decision affects day-to-day state deposits and transactions, but not the state's $13.2 billion state employee retirement system or other large public pension funds.

In a letter to BlackRock CEO Larry Fink, Schroder wrote that considering environmental, social and governance, or ESG, factors runs contrary to Louisiana fiduciary requirements, in which investment decisions must focus solely on financial returns.

Fink has argued that climate risks also affect investments. Stranded assets in the upstream oil and natural gas sector alone could exceed $1 trillion in advanced economies as governments transition to cleaner energy sources, a May study in the journal Nature Climate Change estimated.

Even so, Republican states are staging a backlash against corporate ESG policies as well as efforts by the SEC to streamline financial ESG and climate risk reporting. The states say that such policies are irrelevant in financial disclosures and that abandoning fossil fuels will hurt their economies.

Attorneys general from 19 GOP-led states, including Louisiana, in August said BlackRock was using its management of state pension funds to "pressure companies" to cut greenhouse gas emissions in alignment with the Paris Agreement on climate change.

The conservative American Legislative Exchange Council, an influential lobby group, is spearheading a broader campaign against ESG investment that includes model legislation it says will help states protect their pension funds from "politically driven investment strategies."

BlackRock declined to comment on Schroder's letter to Fink, pointing instead to its response to the attorneys generals' criticism of how the company handles pension investments.

"Given our commitment to those saving for retirement, we are disturbed by the emerging trend of political initiatives that sacrifice pension plans' access to high-quality investments — and thereby jeopardize pensioners' financial returns," BlackRock wrote. "Open competition, the free flow of information, and freedom of opinions is core to the strength of U.S. capital markets."

BlackRock remains a major investor in the energy sector with $310 billion in assets globally, the company assured Texas in May. Critics say the company is catering to states with fossil fuel interests while trying to appease investors and blue states worried about climate risks, a strategy they say has backfired.

The asset manager's fossil fuel investments make up just a small portion of its overall portfolio: 5.57% as of Oct. 6, S&P Global Market Intelligence data shows. But that share nearly doubled from 2.91% in early 2021.

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