Why The Ukraine War Won’t Crimp Green Investing

BlackRock leader Larry Fink has sounded a call to corporate America to commit itself to net zero—that is, eradicating its carbon footprint. They must eliminate greenhouse gas emissions by 2050, and provide concrete plans to do so now, he declared. If they don’t take those steps, they risk BlackRock dumping their stock, Fink warned.

For the most part, companies are playing along with the chief of BlackRock, the largest asset manager on earth (assets: $10 trillion). Sure, some of this is greenwashing, where the environmental effort is mostly a public relations façade. A lot of managements are taking Fink seriously, however, to the dismay of the political right, which argues that tree-hugging virtue will lead to slimmer profits and hurt the economy. (This is a notion that some dispute, to say the least.)

But now comes a global energy crisis, courtesy of the Russia-Ukraine war. Europe still seems to want Russian natural gas, despite the European Union’s joining in on sanctions against Vladimir Putin’s nation and his cronies. Overall, analysts expect the supply of oil and natural gas to shrink. The Dallas Federal Reserve Bank projects that Russia, a major energy supplier, will export 3% less oil this year. President Joe Biden, backtracking somewhat on his green agenda, is trying to spur energy production to cover the gap and wants to boost U.S. liquified natural gas shipments to Europe.

Meanwhile, Fink has taken a lot of heat for what critics see as a ham-handed approach to getting businesses to back a climate-friendly position. West Virginia Treasurer Riley Moore, a Republican, plans to block the state from using BlackRock for banking transactions, because Moore says the firm’s net-zero goal would harm his state’s coal industry. With BlackRock in mind, Texas legislators passed a bill barring state agencies from investing public money with asset managers that “boycott energy companies,” even though Fink retains stakes in the sector. Bills to do much the same thing are moving through the Idaho legislature.

So with Biden seeming to backtrack on net zero and red state opposition rising, how is Fink responding? His answer is a version of his riposte to charges that green-minded investments produce, by definition, lackluster returns. He argues that they generate superior outcomes, as they don’t run reputational risks of spewing pollutants and, since net zero is the future, are aligned with an ongoing trend.

In his latest note to BlackRock shareholders, Fink writes that “recent events will actually accelerate the shift toward greener sources of energy in many parts of the world.” He points to how quickly coronavirus vaccines were developed, driven by a sense of urgency.

“We’ve already seen European policy makers promoting investment in renewables as an important component of energy security,” he says. “Germany, for example, plans to accelerate its use of renewable energy and reach 100% clean power by 2035, 15 years ahead of its previous pre-war target.” So there.