BlackRock & Vanguard: Get Out of Fossil Fuel Funded Wars - BlackRock's Big Problem

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  • BlackRock & Vanguard: Get Out of Fossil Fuel Funded Wars

    Russia’s invasion of Ukraine is the most immediate example of violence financed by the fossil fuel economy, but it is only one demonstration of a consistent pattern. From Saudi Arabia’s assault on Yemen to murders of Indigenous environmental defenders in the oil-rich Amazon to the United States’ industry-supported invasion of Iraq and Libya, the oil and gas industry is an inherent driver of conflict, violence, and human rights abuses.

    Russia’s sales of oil and gas account for almost 40% of the country’s national budget — a revenue stream that funds the Russian military. Fossil fuel production gives petrostate autocrats, like Putin and the Saudi Royal Family, immense power to enact violence. Continued investments in the fossil fuel industry will only provide further financing for similar violent conflicts now and in the future. Asset managers like BlackRock and Vanguard must exit fossil fuel companies that have no credible transition plans, especially in states that are perpetuating violent conflict and human rights abuses.

    BlackRock and Vanguard: We're watching you

    Fossil fuels like coal, oil, and gas are powering the most destructive forces on earth: war and climate change. The extent of the debilitating effects of a carbon-heavy economy is spelled out very clearly in the latest IPCC report. As Svitlana Krakovska, an environmental scientist representing Ukraine at the IPCC, said at its closing session this week, “Human-induced climate change and the war on Ukraine have the same roots — fossil fuels — and our dependence on them.”

    BlackRock and Vanguard now need to comprehensively and permanently limit their exposure to fossil fuel companies — including those based in Russia. Unless the asset managers take immediate and decisive action, they will push the global economy toward a deadly dependence on unstable energy sources that have the potential to cause more violent conflict. This undermines BlackRock’s and Vanguard’s duty as fiduciaries to ensure the long-term well-being of their clients.

    The time is now for BlackRock and Vanguard to lead by showing they are willing to stop doing business with companies whose practices are antithetical to supporting human dignity, a livable future, and the needs of their clients.

    Specific immediate actions should include:

    Capital shifts

    • When market conditions allow, swiftly exit, not just suspend, debt and equity holdings in all publicly traded Russian coal, oil, and gas companies in all active funds and commit to not reinvest. (See full company list.)
    • Ensure that these companies are not in any ESG fund that BlackRock and Vanguard offer.
    • Commit to denying any future debt to these companies.

    Engage with relevant entities

    • Continue to engage all major index providers to drop these companies from all relevant indices across all geographies, in both equity and debt offerings.
    • Ensure that index providers will not put these fossil fuel companies back into indices when political tensions ease.
    • Engage with other coal, oil, and gas companies that have Russian subsidiaries to ensure that they are severing ties to those businesses.
    • Engage with other oil companies to ensure that meeting urgent energy needs doesn’t lock in decades more of fossil fuel expansion. Addressing supply immediate needs must also be aligned with achieving a 1.5°C pathway.

    Use their public platform

    • BlackRock and Vanguard must use their public platforms to condemn the war in Ukraine while promoting respect for human rights across the globe for all and especially those impacted by all conflicts and violence.
    • BlackRock and Vanguard must use their public platforms to promote and support climate-safe and equitable energy access.

    In a welcome and precedent-defining move, BlackRock said Thursday that it suspended the purchase of Russian securities in its active and index funds. The asset manager also stated that it has been engaging with index providers and regulators to remove Russian securities from its broader indices and to ensure its clients can exit their positions whenever and wherever regulatory and market conditions allow. This may well have played a crucial role in major index providers MSCI and FTSE Russell removing Russian equities from their indices.

    BlackRock has taken this first, important step to address its exposure to Russian fossil fuel companies, but Vanguard has remained noticeably silent amidst the growing demand for action during this conflict. Leadership is forged in the crucible of crisis and the asset managers’ actions speak volumes.

     

    UPDATE: As of Monday, 3/7/22, Vanguard joined BlackRock in suspending the purchase of all Russian securities across both its internally and externally managed active funds. The firm also put out this statement detailing its response. 

    Tuesday, 3/8/22, President Biden announced an Executive Order that bans all U.S. companies and investors from new investment in Russian fossil fuel companies. This puts the force and effect of law behind the suspension of Russian securities purchasing commitments the asset managers made previously. The President closed the Executive Order with this statement: 

    “In the long run, the way to avoid high gas prices is to speed up – not slow down – our transition to a clean energy future. We cannot drill our way out of dependence on a global commodity controlled in part by foreign nations and their leaders, including Putin. The only way to eliminate Putin’s and every other producing country’s ability to use oil as an economic weapon, is to reduce our dependency on oil. So, even as President Biden does everything in his power in the short term to make sure we can readily access the oil and gas necessary to protect American consumers and allied countries– including through greater U.S. domestic production that is expected to hit record highs next year – this crisis reinforces our resolve to make America truly energy independent, which means reducing our dependence on fossil fuels. This is a shared goal with our European allies, that we will work together to achieve.”  

    The energy transition is already underway. While the speed and shape of that transition is not yet determined, BlackRock and Vanguard’s power is determinative. We strongly urge both asset managers to be wary of balancing current energy needs with the imperative to not lock us into runaway climate change. This moment is a clarion call to all that we cannot simply switch to other sources of fossil fuels — we must move away from them all together.

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