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Matt Levine, as always, provides the most honest and direct commentary about this. Here's the start, but the whole piece is interesting, as pointed out by a re

Matt Levine, as always, provides the most honest and direct commentary about this. Here's the start, but the whole piece is interesting, as pointed out by a reply. https://www.bloomberg.com/opinion/articles/2020-01-14/blackrock-has-green-plans https://www.bloomberg.com/opinion/articles/2020-01-14/blackr... > Will BlackRock’s decision to send a strongly worded letter about environmental sustainability reshape how corporate America does business? Well, I remember two years ago when Larry Fink sent a strongly worded letter about how companies needed to make society better, and that too was supposedly “likely to cause a firestorm in the corner offices of companies everywhere,” and now, uh, same society really. > Now BlackRock will send a strongly worded letter to CEOs about the environment. It will arrive on the desk of the CEO of, I don’t know, giant state-owned oil company Saudi Aramco? A company where, according to Bloomberg data, BlackRock is the largest outside shareholder. A company that did a bond offering last year—after the Saudi government murdered and dismembered Jamal Khashoggi, after Fink sent that letter about making society better—in which BlackRock was also a big investor. “We wanted the Aramco bond to be much bigger,” Fink said, way back in April, when his public-relations goal was to butter up Saudi Arabia. Now it is January, and his public-relations goal is to butter up environmentalists, so BlackRock “will make investment decisions with environmental sustainability as a core goal.” Next time a big oil company is looking for money, presumably that will change again. > I could keep being cynical about this all day.

deleted 7y ago
[deleted]
zamfi 7y ago
Your post quotes the cynical piece of Levine’s editorial (literally his next three words are “but let’s not”, referring to “being cynical all day”), but it’s worth reading in full for the more nuanced perspective. I found the last two paragraphs surprisingly enlightening: > The right model of BlackRock is probably that it is mostly an aggregator of preferences, but it is also, at the margin, a shaper of preferences. It passively reflects what investors want generally, but it has some ability to push those investors to want different things. There are other things that BlackRock does—it votes the shares of stock that it owns on behalf of investors, it meets with managers to talk about their sustainability plans, it writes strongly worded letters to CEOs—but I suspect that they’re mostly less important than the basic core function of taking $7 trillion from investors, channeling it where the investors want it to go, and slowly and subtly diverting those channels so that the money moves more in the direction that BlackRock wants it to go. > This is an unavoidably uncomfortable role. If you want BlackRock to do more on climate change, you will be annoyed that it mostly offers broad passive products that buy all the stocks, including the ones you don’t like. If you want BlackRock to do less on climate change, you will be annoyed that it is pushing its clients into sustainability-focused funds rather than neutrally giving them all the stocks, including the ones BlackRock doesn’t like. Mostly it is an uncomfortably powerful role: BlackRock really is a general aggregator of preferences, so it speaks with the authority of its $7 trillion and its universal ownership, which means that its ability to shape those preferences matters.
woodandsteel 7y ago
No, these are two very different cases. The earlier one was about corporate social responsiblity, the new one is about investment profitability. And if you are wondering if the BlackRock head is right, do a google search on "fossil fuels stranded assets"
wtvanhest 7y ago
Disclaimer: I worked for BlackRock for about 3 years on an investment team (but its been a while and I don't have a dog in this fight) BlackRock is a very simple business to understand. First, they only investment money on behalf of their clients and they take investment fees for making decisions on behalf of their clients (investing their money). They break the business in to two parts: Alpha: old school mutual funds, new school quant funds, real estate etc. Anything where managers get paid big bucks to make investment decisions on behalf of clients. Beta: passive investment vehicles that blackrock tries to deliver for the lowest price with lowest tracking error (i.e. deliver as close to what the index returns as possible). What BlackRock is doing here, is a VERY, VERY big deal. They are allowing clients to now pick passive investment strategies which exclude coal or other businesses that people find morally objectionable. What that means is that if you care about the environment you can move your money to these new passive investments. As more and more people do it, it will decrease demand for equity in those companies and increase their cost of capital. On the active side, they already had that feature, and many of their clients already ask BlackRock to exclude investments from their active portfolios and were willing to accept less return. (BlackRock has offered that for a very long time). I find very few things interesting that asset managers do, but I am going to look at all my passive investments and try to get them moved over. I bet passive funds without coal etc. will outperform while more and more people move money from vanilla S&P500 to S&P500 without coal. Eventually those coal companies may fall out of indexes all together which will really increase their cost of capital. Brilliant move by Fink, and I applaud it.
- gerdesj 7y ago
  Ta for the considered comment. Your stated opinion gybes very well with my assessment of the state of things and you come from a very, very different part of the world to me, both physically and workwise.
  - Jarwain 7y ago
    I feel like you were looking for the north American slang word "jive"
wallace_f 7y ago
>Larry Fink sent a strongly worded letter about how companies needed to make society better On the topic of executives needing to improve society, Fink here was important in the creation of the MBS market.
- 2arrs2ells 7y ago
  There’s nothing inherently wrong with mortgage-backed securities (they exist today!). In fact, there’s a lot right with them - they allow specialization by firms within the mortgage process and participation by investors with various risk profiles. It’s applying the Unix mindset of specialized composable functions to mortgages. The 2008 crisis happened because MBSs became a bubble - investors stopped performing diligence (and risk models were crappy), so securitizers started packaging up crap, underwriting standards dropped, etc.
  - wallace_f 7y ago
    If you're familiar with the market and the dogma at the time, the idea was that securitization used mathematical techniques to actually reduce risk, and these were being sold as such. What's wrong was after this bubble popped, the taxpayer was on the hook for the socialized bailout, while the temporary profits were privatized. As such, while people like Fink may not have seen this through from start to finish, their ignorance or unwillingness to blow the whistle on something as destructive as this calls into question--in my opinion--their competence or earnestness in indicting others to effectively do what he should have done.
    - gvhst 7y ago
      While there were definitely a bunch of shady things going on (e.g. Paulson helping Goldman negotiate a 100% payout of AIGs CDS obligations) during the crisis, the treasury actually made a profit of $15.3bn on TARP.

deleted 7y ago

[deleted]

zamfi 7y ago

Your post quotes the cynical piece of Levine’s editorial (literally his next three words are “but let’s not”, referring to “being cynical all day”), but it’s worth reading in full for the more nuanced perspective. I found the last two paragraphs surprisingly enlightening: > The right model of BlackRock is probably that it is mostly an aggregator of preferences, but it is also, at the margin, a shaper of preferences. It passively reflects what investors want generally, but it has some ability to push those investors to want different things. There are other things that BlackRock does—it votes the shares of stock that it owns on behalf of investors, it meets with managers to talk about their sustainability plans, it writes strongly worded letters to CEOs—but I suspect that they’re mostly less important than the basic core function of taking $7 trillion from investors, channeling it where the investors want it to go, and slowly and subtly diverting those channels so that the money moves more in the direction that BlackRock wants it to go. > This is an unavoidably uncomfortable role. If you want BlackRock to do more on climate change, you will be annoyed that it mostly offers broad passive products that buy all the stocks, including the ones you don’t like. If you want BlackRock to do less on climate change, you will be annoyed that it is pushing its clients into sustainability-focused funds rather than neutrally giving them all the stocks, including the ones BlackRock doesn’t like. Mostly it is an uncomfortably powerful role: BlackRock really is a general aggregator of preferences, so it speaks with the authority of its $7 trillion and its universal ownership, which means that its ability to shape those preferences matters.

woodandsteel 7y ago

No, these are two very different cases. The earlier one was about corporate social responsiblity, the new one is about investment profitability. And if you are wondering if the BlackRock head is right, do a google search on "fossil fuels stranded assets"

wtvanhest 7y ago

Disclaimer: I worked for BlackRock for about 3 years on an investment team (but its been a while and I don't have a dog in this fight) BlackRock is a very simple business to understand. First, they only investment money on behalf of their clients and they take investment fees for making decisions on behalf of their clients (investing their money). They break the business in to two parts: Alpha: old school mutual funds, new school quant funds, real estate etc. Anything where managers get paid big bucks to make investment decisions on behalf of clients. Beta: passive investment vehicles that blackrock tries to deliver for the lowest price with lowest tracking error (i.e. deliver as close to what the index returns as possible). What BlackRock is doing here, is a VERY, VERY big deal. They are allowing clients to now pick passive investment strategies which exclude coal or other businesses that people find morally objectionable. What that means is that if you care about the environment you can move your money to these new passive investments. As more and more people do it, it will decrease demand for equity in those companies and increase their cost of capital. On the active side, they already had that feature, and many of their clients already ask BlackRock to exclude investments from their active portfolios and were willing to accept less return. (BlackRock has offered that for a very long time). I find very few things interesting that asset managers do, but I am going to look at all my passive investments and try to get them moved over. I bet passive funds without coal etc. will outperform while more and more people move money from vanilla S&P500 to S&P500 without coal. Eventually those coal companies may fall out of indexes all together which will really increase their cost of capital. Brilliant move by Fink, and I applaud it.

gerdesj 7y ago
Ta for the considered comment. Your stated opinion gybes very well with my assessment of the state of things and you come from a very, very different part of the world to me, both physically and workwise.
- Jarwain 7y ago
  I feel like you were looking for the north American slang word "jive"

wallace_f 7y ago

>Larry Fink sent a strongly worded letter about how companies needed to make society better On the topic of executives needing to improve society, Fink here was important in the creation of the MBS market.

2arrs2ells 7y ago
There’s nothing inherently wrong with mortgage-backed securities (they exist today!). In fact, there’s a lot right with them - they allow specialization by firms within the mortgage process and participation by investors with various risk profiles. It’s applying the Unix mindset of specialized composable functions to mortgages. The 2008 crisis happened because MBSs became a bubble - investors stopped performing diligence (and risk models were crappy), so securitizers started packaging up crap, underwriting standards dropped, etc.
- wallace_f 7y ago
  If you're familiar with the market and the dogma at the time, the idea was that securitization used mathematical techniques to actually reduce risk, and these were being sold as such. What's wrong was after this bubble popped, the taxpayer was on the hook for the socialized bailout, while the temporary profits were privatized. As such, while people like Fink may not have seen this through from start to finish, their ignorance or unwillingness to blow the whistle on something as destructive as this calls into question--in my opinion--their competence or earnestness in indicting others to effectively do what he should have done.
  - gvhst 7y ago
    While there were definitely a bunch of shady things going on (e.g. Paulson helping Goldman negotiate a 100% payout of AIGs CDS obligations) during the crisis, the treasury actually made a profit of $15.3bn on TARP.