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BlackRock ESG Hypocrisy Exposed: Firm Backs Palm Oil Producer With History Of Abuses

Summary:
BlackRock made a big stink about Warren Buffett's resistance to a pair of shareholder proposals to mandate ESG and diversity reporting standards across Berkshire Hathaway's vast business holdings. Buffett ultimately prevailed, as he has in past years, but the backlash this year was more vocal, with a team of Reuters reporters writing that Buffett's ESG "snub" "risks alienating Wall Street." While some insist that ESG is the way of the future, others contend that it's more of a fad. Some purveyors of tradeable carbon credits have been accused of selling "worthless" offsets, revealing that the system is actually pretty complicated, and auditing whether these credits are actually behaving as advertised could be a resource-intense endeavor. But while BlackRock makes a fuss about reporting

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BlackRock made a big stink about Warren Buffett's resistance to a pair of shareholder proposals to mandate ESG and diversity reporting standards across Berkshire Hathaway's vast business holdings. Buffett ultimately prevailed, as he has in past years, but the backlash this year was more vocal, with a team of Reuters reporters writing that Buffett's ESG "snub" "risks alienating Wall Street."

While some insist that ESG is the way of the future, others contend that it's more of a fad. Some purveyors of tradeable carbon credits have been accused of selling "worthless" offsets, revealing that the system is actually pretty complicated, and auditing whether these credits are actually behaving as advertised could be a resource-intense endeavor.

But while BlackRock makes a fuss about reporting standards that, more likely than not, would have little real-world impact, a report published Wednesday by the Financial Times laid bare the ETF giant's hypocrisy when it comes to enforcing its new ESG "standards".

BlackRock ESG Hypocrisy Exposed: Firm Backs Palm Oil Producer With History Of Abuses

The world's biggest asset manager, with nearly $9 trillion in assets, has been accused of being inconsistent for supporting a shareholder protest against Procter & Gamble's sourcing of palm oil from an Indonesian company called Astra Agro Lestari, a subsidiary of the Astra International conglomerate based in Indonesia. The company has been accused of stealing land from local farmers, and other ESG abuses. The company's product enters the US supply chain via a relationship with Singapore-based Wilmar International, which P&G has since asked to investigate its suppliers.

But as it happens, BlackRock owns a stake both in Astra International, as well as a small direct stake in its subsidiary. And what has BlackRock done to push reform? Nothing substantial, activists conclude.

Rights groups and sustainable investment advocates have now turned their attention to BlackRock, which is a significant shareholder in Astra International. According to Bloomberg data, the US fund group is Astra International’s third-largest investor, with a holding worth almost $350m. It also has a small direct holding in Astra Agro Lestari.

Green finance groups said BlackRock had been inconsistent in its approach to ESG considerations by not openly pressing Astra over its environmental record. The $8.7tn fund house has come under increasing pressure to live up to its 2020 pledges regarding ESG and sustainable investing.

"It's incoherent that BlackRock is pushing P&G to clean up its value chain while simultaneously continuing to profit from this same value chain," said Lara Cuvelier, sustainable investments campaigner at Reclaim Finance, an investor lobby group.

BlackRock should "make time-bound and detailed requests to the company...and commit to divesting if the requisite changes are not forthcoming," Cuvelier added.

BlackRock has long argued that behind-the-scenes conversations with board directors will drive change, but critics argue that companies often only listen to the “ultimate sanction” of divestment.

Astra International is majority-owned by Hong Kong trading house Jardine Matheson through its Singapore-listed unit, Jardine Cycle and Carriage. BlackRock's holdings, which have gradually increased over nine years, are mostly held through mutual funds and ETFs. And that's the problem. While the company can vote against board proposals, BR's index investing model makes it difficult to threaten divestiture, which activists say is typically the only threat that ESG abusers will take seriously.

BlackRock said it was "well aware" of the concerns and was "continuously engaged" with companies over sustainability concerns. "Where we believe companies are not moving with sufficient speed and urgency, our most frequent course of action will be to hold directors accountable by voting against their re-election," it said. At Astra International's 2020 annual meeting, BlackRock voted against a motion regarding board changes and director remuneration over disclosure issues.

Circling back to the Berkshire Hathaway, Buffett said over the weekend that he opposed the ESG measures (one of which would have required annual reports about what Berkshire companies were doing to confront climate change, as well as updates on "diversity and inclusion") because he doesn't like making "moral judgments" on businesses.

Buffett isn't alone: ValueAct's Jeff Ubben, who once praised BlackRock for its commitment to make ESG and fighting a climate change a priority, recently criticized the fund giant's measures as misguided.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit.

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