BlackRock has chosen to exit the Net Zero Asset Managers (NZAM) initiative, signaling yet another shift within the financial industry amid mounting pressures from political forces and legal concerns. The world’s largest investment firm announced its departure on January 9, 2023, citing confusion around its climate practices and exposure to legal inquiries as major factors.
According to BlackRock's letter to clients, obtained by Bloomberg, the firm stated, “Membership caused confusion... and subjected us to legal inquiries from various public officials.” This initiative, which commits its members to achieving net-zero portfolios by 2050, has over 325 signatories managing assets worth approximately $57.5 trillion. BlackRock’s exit not only reflects its internal challenges but also mirrors the broader trend as several major U.S. banks and firms have scaled back their commitments to net-zero environmental protections.
Ben Cushing, campaign director for the Sierra Club’s Fossil-Free Finance campaign, commented on BlackRock’s decision, stating: “Regardless of the political pressures Larry Fink is responding to, the fact remains... climate change poses one of the greatest risks to our global economy.” He urged BlackRock to realign its strategies to support meaningful climate action, emphasizing the need for stronger shareholder voting and investment toward industries mitigating systemic climate risks.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, remarked: “The news... should come as no surprise to anyone. BlackRock has hung in there as long as it could, but the pressure has become too great...” She noted the reputational and legal risks prompted by the external pressures, particularly as the political climate shifts with the emergence of new leadership.
The exit of BlackRock from the NZAM initiative poses significant questions for the coalition, which has already faced challenges since its establishment. Following BlackRock’s departure, NZAM announced it would suspend its activities and review its initiatives amid growing scrutiny. A letter from the partnership groups managing NZAM informed members about halting activities to reassess the alignment with shifting regulatory and market expectations.
This pause raises concerns about the commitment level of firms to tackle climate change, especially during what has been reported as the hottest year on record. Kathy Mulvey from the Union of Concerned Scientists emphasized the importance of collective efforts to meet emissions reduction targets, asserting, “...the financial sector's actions to advance emissions reductions and the clean energy transition aren't going away.”
With political ramifications looming, the reputational damage from backing out of initiatives such as NZAM could hinder future collaborative environmental efforts. The NY Times has reported on how escalated pressure from Republican politicians—particularly concerning fossil fuel investments—has intensified scrutiny over asset management strategies reflective of environmental, social, and governance (ESG) factors.
BlackRock is not alone; numerous other financial institutions, including some of the largest U.S. banks, are reassessing their commitments to climate initiatives. The mass exit from coal-related investments mirrors how firms previously aligned with NZAM have turned away from climate pledges due to increasing political pressures and legal inquiries.
While BlackRock's departure raises doubts about its future commitment to addressing climate change, experts like Cushing and Bioy assert the necessity to prioritize real-world decarbonization strategies. “If BlackRock won’t do [support decarbonization], its clients should find a different asset manager,” Cushing urged, reflecting the gravity of investment choices aligned with climate responsibilities.
With the inaugural review underway and economic circumstances constantly shifting, how financial firms navigate their commitments underlines the importance of adaptability within the asset management industry. The concerns cited within NZAM’s network highlight the potential for future setbacks within environmental initiatives, as the departure of influential stakeholders sends tremors through cooperative climate action efforts.
Continued dialogue and pressure from advocacy organizations are anticipated as financial firms reassess their positions. The overarching challenge remains: align their investment strategies with effective climate action without falling victim to political pressures or their reputational risks.