Experts Say BlackRock and JP Morgan’s Withdrawal from UN Climate Group Reflects Widespread Opposition to ESG

Experts Say BlackRock and JP Morgan’s Withdrawal from UN Climate Group Reflects Widespread Opposition to ESG

In a surprising move, JPMorgan Chase, State Street, and BlackRock have decided to withdraw from or significantly limit their participation in the United Nations Climate Action 100+ coalition, signaling a broader shift in the asset management industry against strict adherence to environmental, social, and governance (ESG) principles. This decision reflects the tension between socially conscious investing and profitability, according to business experts.

The withdrawal of these major financial institutions from the coalition highlights the pressure asset managers face to perform well and satisfy shareholders. Many argue that ESG requirements are arbitrary and costly, making investment decisions based on climate policy less profitable. Charles Steele, Chair of the Economics, Business, and Accounting Department at Hillsdale College, explains that participating in Climate Action 100+ is legally risky and financially burdensome.

The change in stance by BlackRock is particularly notable considering CEO Larry Fink’s previous commitment to ESG investing. In a letter to shareholders in January 2020, Fink emphasized the importance of addressing the climate crisis and urged companies to comply with climate-related financial disclosures. However, four years later, it appears that BlackRock and other asset management firms view blind adherence to ESG as unsustainable.

This shift is not limited to the United States. In the European Union (EU), there is widespread dissatisfaction with the Sustainable Finance Disclosure Regulation (SFDR), which imposes ESG disclosure requirements on financial firms and investment advisors. Some major players in the EU have already moved their funds’ categorization from “dark” green to “light” green, indicating a growing skepticism towards strict ESG standards.

Experts argue that shareholder dissatisfaction with ESG criteria and concerns about the effectiveness of ESG investments are driving this trend. Firms like BlackRock, State Street, and JPMorgan Chase have a fiduciary responsibility to their clients, and the increasing strictness of ESG requirements threatens their control over investment decisions and exposes them to potential liability.

Moreover, the imposition of ESG requirements can have adverse effects on equity and cryptocurrency prices and market performance. Scott Rummler, founder of data analytics firm ScalarSight, points out that announcements from regulatory bodies regarding ecological goals and requirements create volatility in the stock markets. This volatility is evident in the declining stock performance of companies like AMC Entertainment and GameStop.

The financial markets perceive the advancement of ESG criteria as a threat to their business models. Instead of adapting to these requirements, they view them as systemic risks. The lack of a universally agreed definition of an ESG stock further complicates matters, as it leaves asset managers without a clear methodology for decision-making.

Jeffrey Hooke, a lecturer at Johns Hopkins Carey School of Business, highlights the conflict between ESG politics and fiduciary obligations. Injecting ESG criteria into investment decisions may contradict the fiduciary guidelines set forth by regulatory bodies and goes against the responsibility to shareholders.

Furthermore, there is a lack of research supporting the performance of ESG portfolios compared to others. Hooke notes that when pension plans and university endowments pursue ESG policies, they often do not provide independent studies to back up their recommendations.

Overall, the withdrawal of BlackRock and JPMorgan Chase from the UN Climate Action 100+ coalition reflects a broader skepticism towards strict adherence to ESG principles in the asset management industry. The tension between socially conscious investing and profitability, along with concerns about the effectiveness and cost of ESG requirements, has led major financial institutions to reassess their commitment to ESG.