Tuesday, June 14, 2022
BlackRock will not be the 'environmental police' in ethical investing U-turn
The Fink gets real
Larry Fink's comments represent a significant U-turn for the money manger which has been at the forefront of Wall Street's ethical investing push CREDIT: Simon Dawson /Bloomberg
BlackRock’s chief executive has warned it will not act as “the environmental police” in the latest sign the asset manager is shying away from green activism.
Larry Fink, head of the world’s largest money manager, said that it is wrong to ask the private sector to ensure that the companies they invest in are doing their part to combat climate change.
In an interview with Bloomberg TV, he said: “I don’t want to be the environmental police.”
Mr Fink’s comments represent a significant u-turn for BlackRock which has been at the forefront of Wall Street’s push to focus on environmental, social and governance (ESG) investing.
It comes after the asset manager warned last month that it will vote against most shareholder resolutions on climate change this year as they are too extreme.
The company said it was concerned about proposals to stop financing fossil fuel companies, including forcing them to decommission assets and setting absolute targets for reducing emissions in their supply chains.
In January 2020, Mr Fink said “climate risk is investment risk” as he positioned BlackRock as a leader in ESG investing. He also warned that climate change posed the biggest ever risk to financial markets.
Mr Fink said: “Climate change is different. Even if only a fraction of the projected impacts is realised, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.”
Blackrock has ballooned to manage just under $10 trillion (£7.3 trillion) in assets, giving the company significant stakes and influence in many of the world’s largest corporations.
The decision to distance itself from “prescriptive” climate change policies comes as institutional investors face criticism for allegedly pushing political agendas.
However, BlackRock has been a target of criticism from both climate activists and those who promote a more gradual transition to green energy.
In Texas, the asset manager has denied suggestions by state officials that it boycotts fossil-fuel companies through its advocacy for sustainable investing.
In recent months, the asset manager has said that Russia’s invasion of Ukraine has impacted the transition to net-zero, adding that short-term investment in traditional energy sources is now required to boost security.
BlackRock’s latest stewardship report also stated that the company will not support proposals that could lead to companies being "micromanaged".
It said: "We are not likely to support those [shareholder proposals] that in our assessment, implicitly are intended to micromanage companies.
“This includes those that are unduly prescriptive and constraining on the decision-making of the board or management, call for changes to a company's strategy or business model or address matters that are not material to how a company delivers long-term shareholder value."
ESG investing has come under further scrutiny in recent weeks, with critics arguing that some companies and investors are using the catch-all term to “greenwash” - giving false information to promote an environmentally responsible image.
Last week, Deutsche Bank's headquarters was raided by German police over accusations of "greenwashing" its investments.
Around 50 police officers entered the Frankfurt offices of Germany's largest lender and those of its asset manager unit DWS.
It follows inquiries into DWS by the German regulator BaFin and the US Securities and Exchange Commission after its former head of sustainability alleged last year that the company had inflated its ESG credentials.
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The UK car industry is caught between the death of the combustion engine and the full dawning of electric vehicles
Car manufacturing is a totemic industry in the UK and one of the last big links to the country’s manufacturing heritage. The regular curmudgeonly complaint that Britain doesn’t make anything anymore can swiftly be countered with a quick nod to the nearly 350,000 Qashquais, Jukes and Leafs (Leaves?) that roll off Nissan’s hyper-efficient, state-of-the-art production line in the North East each year. Cars remain the UK's number one export.
But for how much longer? The UK’s car manufacturers have faced four huge roadblocks in quick succession. First they only just managed to swerve the worst form of Brexit which would have resulted in tariffs being placed on exports. Then they got into a fender bender with Covid that resulted in factories being shut down and supply chains becoming gummed up. Now they are having to make evasive manoeuvres to avoid head on collision with an imminent recession and the drive towards net zero.
Much has been made of Thatcher’s pitch to Japanese car makers, which sold the UK as a beachhead into the common market. But that was only ever part of the deal. She also offered tax breaks to encourage investment and presided over a booming economy that boosted demand. The UK became an enormous market in its own right. The Bavarian nickname for Großbritannien is Treasury Island because one in five cars built in Germany ends up here.
One of the most important concepts that Japanese carmakers brought with them to the UK was “kaizen”, which roughly translates as “continuous improvement”. It is thought that this is one of the reasons why productivity in the industry between the financial crisis and 2015 increased by 30pc even as it flatlined in most other sectors.
But following the Brexit referendum, the UK government and car industry essentially became locked in a long-running debate about maintaining the status quo. Having at the last possible minute achieved that aim and avoided the imposition of margin-destroying tariffs on exports to the EU, there is now a dawning realisation that the standing still is patently not good enough.
In July last year, Honda closed the doors on its Swindon factory after 36 years with the loss of 3,000 jobs. Brexit was the obvious culprit especially given how vocally Honda had opposed it. But industry experts pointed out the plant had been struggling for some time. Analysts believe that car plants need to produce roughly a quarter of a million cars a year in order to achieve the required economies of scale. Swindon was struggling to produce 160,000.
The real issue facing the UK car industry is that it has emerged from the threats posed by Brexit and Covid and a long cessation of “continuous improvement” into a fuzzy period between the twilight of the combustion engine and the full dawning of electric vehicles.
There are two chicken-or-egg situations - one around demand for electric cars and the other around how they are built - that need to be resolved. Normally one would expect the market to just figure these problems out. But the state has at least partly precipitated both - by setting an artificial deadline for net zero and prolonging the uncertainty around Brexit - and will therefore have to help resolve them.
The UK is banning the sale of new petrol and diesel cars by 2030. Figures out on Monday showed that new UK car registrations fell by 20.6pc to 124,394 units in the second weakest May since 1992. (The worst May was when the country was in lockdown in 2020 and therefore doesn’t really count.)
The decline, compared with the first full month of reopened showrooms in May last year, demonstrates the impact of continued global supply chain disruptions but it is also the result of cash-strapped households holding off from making big purchases, especially when the choice is between a petrol or diesel powered car, which will soon be obsolete, and an electric vehicle they may struggle to charge.
As SMMT boss Mike Hawes says: “To… drive a robust mass market for these vehicles, we need to ensure every buyer has the confidence to go electric. This requires an acceleration in the rollout of accessible charging infrastructure.”
At the same time, traditional manufacturers are struggling to reconfigure their product lines and supply chains. Battery vehicles have far fewer moving parts, which has significantly elevated the importance of localised production. New rules of origin requirements meant that car makers have to prove that 40pc of the value of the parts in a finished car were produced in the UK or the EU before they can be exported to the continent.
This threshold rises to 45pc next year and 55pc in 2027. Batteries tend to make up about 50pc of the total value of an eclectic car. What’s more, they’re really heavy. Those for the Nissan Leaf weigh about 300kg, while those for the Jaguar i-Pace come in at roughly one tonne. The upshot is, batteries need to be made very close to where the car is assembled.
Nissan, for example, is increasing production in the UK after signing an exclusive deal with a battery producer called Envision, which has a plant near Sunderland. The trouble is, there aren’t many Envisions around. This is why the UK needs to do everything it can to attract gigafactories to these shores.
The countries that win the race to scale up battery production will be the ones that are able to generate the efficiencies and economies of scale that ensure they can maintain a meaningful mass-market car industry beyond the end of this decade. This is a sector that needs more than lucky if it is to continue to endure.
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Putin's war and green zealots doom the West to a ruinous energy bill
Traditionally, the oil price cycle follows a wholly predictable pattern. High prices, whatever their immediate cause, deliver bumper profits and therefore prompt a dash to invest; but those very same high prices will also create their own demand destruction, often resulting in an outright recession as economies struggle to absorb soaraway energy costs.
Demand abates just as all that new capacity comes on stream, causing prices to collapse and new investment to cease. Demand then comes back into balance with capacity, and eventually exceeds it. Prices start to rise, and the cycle begins again.
But there are two big differences this time around – the climate change agenda and sanctions against Russia for its murderous assault on Ukraine. Even before the Russian invasion, it was obvious that climate change goals, which began to kick in with ever increasing intensity from around 2017 onwards, were going to result in a major supply problem.
Despite continued reliance on hydrocarbons for virtually all our creature comforts, here was an industry said already to be obsolete, and therefore essentially uninvestable. Investment in exploration and development progressively slowed, and then ground to a virtual standstill when the pandemic hit. It was seemingly the end of the line for Big Oil.
You are no longer needed, the oil companies were firmly told; your reserves of oil and gas will be left stranded with no one to sell to, and they are therefore not worth developing.
Institutional investors, with ESG demands to answer to, piled in on top. But then enter stage left the villainous Vladimir Putin. Turns out we are going to need those big bad oil companies after all, and maybe even the pariah fuel of coal.
By seeking to ban Russian oil and gas, Europe has all but removed one of the world’s biggest suppliers from the mix, hugely compounding the capacity shortages that became apparent as economies bounced back from the enforced closures of the pandemic.
The result is a kind of bifurcation in previously global oil and gas markets, with Western countries forced to seek pricey alternatives to Russian hydrocarbons, but less principled countries such as China and India able to access the Russian product at what by today's standards look like bargain basement prices.
Where once they enjoyed the competitive advantage of cheap labour, they now gain the additional benefit of relatively cheap oil and gas.
It’s going to take a long time to develop the alternatives to Russia the West now needs. Still, one pariah cancels out another, I suppose. In seeking to isolate Russia, the US and its allies are ludicrously forced to cosy up to other pariah states such as Saudi Arabia and Iran to help counter the eviscerating effects of $100-plus oil.
Curiously, you might think, we have not yet seen the rehabilitation of Big Oil fully reflected in the share prices of either BP or Shell. Yes, the shares have come surging back, but to nowhere near the levels which have historically been associated with $100-plus oil.
Why is that? Partly, it's down to having to write off big investments in Russian oil and gas. There's also the smash and grab raid of a windfall tax to contend with. But mainly it’s to do with our old friend climate change. Both UK-domiciled oil giants have ambitious plans to transition to renewables.
Understandably, investors are nervous. However time-limited the business of oil and gas might be, there is something to be said for sticking to the knitting – as ExxonMobil, Chevron and Occidental are largely doing by paying out bumper dividends rather than heeding the siren calls of renewable “opportunity”.
Instead, BP and Shell look set to squander today’s embarrassment of riches on enterprises they know nothing about. In any case, it’s all good news for the green lobby. High hydrocarbon prices help speed the transition by making renewable sources of energy look more competitive.
As long as Russia remains out of the action, it’s going to take a long time for Western supply and demand to come back into balance, even with the dampening effects on demand of a recession.
One can criticise France’s Emmanuel Macron and Italy’s Mario Draghi for attempting to sell Ukraine’s territorial integrity down the river by seeking a peace deal with Putin, but at least it recognises this uncomfortable truth. As long as the war persists, energy prices are going to remain destructively high, at least for the West.
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Australia: Federalism comes to coal
The clause below
"until the transition to renewables and storage is complete"
both shows an awareness of the energy problem and tells us how foolish the faith in "renewables" is. To transform to 100% renewables you would need "storage" (batteries) on an umimaginable scale
Individual states and territories will decide whether to exclude coal and gas power from a temporary capacity mechanism, designed to secure enough baseload generation until the transition to renewables and storage is complete.
The Energy Security Board’s draft capacity mechanism, to be released within two weeks, is understood to be based on a technology-neutral model and will not endorse subsidies to keep coal-fired power stations and gas in the system longer than needed.
The ESB brief from federal, state and territory ministers is that the capacity mechanism should not conflict with ambitious renewables and storage targets, and that different jurisdictions can opt in to preferred technologies.
Energy ministers are keen to avoid costs being passed on to customers when energy retailers lock in long-term electricity supplies under a capacity mechanism, which other countries facing supply pressures have adopted.
Amid an east coast electricity crisis fuelled by global factors and outages across the National Electricity Market, more coal-fired power capacity will come online this week to reduce the reliance on high-priced gas.
Queensland’s CS Energy, which contributes 10 per cent of the NEM’s output, is preparing to bring three of the four units at the 1525MW Callide power station online next month, increasing output alongside its 750MW Kogan Creek plant. The Callide plant’s C4 generator, which was shut after an explosion last year, will not resume activity until April next year.
Queensland Energy Minister Mick de Brenni said the government would “not be shutting the gate on our power stations, their workers or their communities and instead will invest in their future”.
“The energy ministers meeting was clear – we will finally have a sensible plan to boost our energy capacity across the nation,” he said. “But we were also clear – in Queensland, the diversity of our energy system is what delivered reliable power, and our power stations will continue to sit at the heart of that. Because Queenslanders own their own energy assets, we have avoided the energy chaos that has gripped southern states in the wake of nine years of the divided Abbott-Turnbull-Morrison government.”
Grattan Institute energy and climate change director Tony Wood said the proposed capacity mechanism was not a “coal-keeper or gas-keeper … it’s the lights-on-keeper”.
Mr Wood said a capacity mechanism was unlikely to lock in long-term investment in coal-fired power stations, and predicted fierce opposition to “perverse incentives” extending the life of coal plants. He raised concerns about high coal prices on the spot market, which were “just as bad” as gas.
“If the capacity mechanism is designed properly, it will only be there while we need it,” he said.
“Other countries have forms of a capacity mechanism, Western Australia has a capacity mechanism. You can design a bad one or you can design a good one. You can design one that rules out certain technologies but there will be consequences if you rule out certain technologies.”
Mr Wood said guidelines provided by energy ministers to the ESB last year would give cover to some, including Victorian Energy Minister Lily D’Ambrosio, to say “we don’t want to have coal or gas getting capacity payments”.
He described the mechanism as a “shock absorber or comfort blanket” for governments that would “not stay in any longer than necessary”. “I do not know how you have a capacity mechanism without coal and gas because you’ve only got a couple of large pumped hydro projects and one of them is already running late,” he said.
“The collective ministers (need to be convinced) that this is not a coal-keeper, or gas-keeper or fossil fuel-keeper. This is a policy that says if we are going to achieve (high renewables targets) we’re going to need capacity to be there when the wind isn’t blowing and the sun isn’t shining. One way to do that is to pay for it.”
Energy ministers will discuss a new net zero emissions energy market plan at their next meeting in July to better align federal, state and territory strategies to decarbonise the sector.
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My other blogs. Main ones below
http://dissectleft.blogspot.com (DISSECTING LEFTISM )
http://edwatch.blogspot.com (EDUCATION WATCH)
http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)
http://australian-politics.blogspot.com (AUSTRALIAN POLITICS)
http://snorphty.blogspot.com/ (TONGUE-TIED)
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Jim Hansen and his twin
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