What does BlackRock’s new “energy pragmatism” tell us about net zero investment?

As financial market influencers go, BlackRock CEO Larry Fink has as much sway over stock market investors as Joe Rogan does over men in their 20s and 30s. His annual letter to investors is closely watched as an indicator of the general direction of travel in global markets.

This year’s letter stands out, not so much for what it includes, but for what it omits. Notably absent are terms such as climate, ESG or DEI, now deemed controversial by the current US administration. Perhaps this is unsurprising. Mere mention of these terms seems to land about as well in the White House as jokes about fake tans or plunging Tesla sales.

It is also worth bearing in mind that the $11.6trn manager remains a contested force from both sides. Earlier this year, BlackRock was taken to court by Texas and other Republican-led states for alleged “climate activism”.

No wonder, then, that Fink is choosing his words carefully. This marks a stark contrast to his 2021 letter, where the word climate appeared 27 times and climate risk was described as investment risk.

From "tectonic change" to "energy pragmatism"

“This is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity,” he wrote in 2021.

This year, the word climate does not appear once. But that does not mean BlackRock is abandoning what Fink once called “a historic investment opportunity.

Instead, the concept of the energy transition is carefully reframed using terms such as “energy pragmatism” and infrastructure investment opportunities. Rather than describing the energy transition as “tectonic change”, as he did in 2021, Fink now speaks of a “$68trn investment boom” in infrastructure expected over the next 15 years. Of this, $21trn will be deployed within the energy sector, he predicts.

For long-term asset owners, he argues that the once-standard 60/40 portfolio no longer offers sufficient diversification. The “future standard portfolio” is more likely to follow a 50/30/20 allocation across equities, bonds and private market assets.

BlackRock is putting this prediction into action, not least through its planned $22.8bn investment in two major ports on the Panama Canal. The bid coincides with US president Donald Trump’s stated desire to reduce Chinese influence over the port.

The irony is that the Panama Canal is precisely the type of infrastructure asset most vulnerable to rising temperatures and drought.

BlackRock also continues to bet on the energy transition, having raised billions for vehicles such as the Evergreen Infrastructure Fund and its Climate Infrastructure team, among others.

A glass half full?

There are at least two ways to interpret Fink’s latest statement. Even some optimists might see the letter as representing a large-scale exercise in greenhushing. This may affect morale among climate investors but will not stop the wider energy transition, as BlackRock’s continued investment in climate solutions demonstrates.

Pessimists may interpret the letter as a sign that the world’s largest asset manager is retreating from its climate ambitions. This would have material consequences, particularly for global stewardship efforts on net zero. After all, BlackRock is by most accounts the largest owner of listed companies worldwide.

While the truth may be somewhere in the middle, it is worth acknowledging that investor support for shareholder resolutions hit a record low in 2024, with only 1.4% receiving majority support, according to ShareAction’s latest Voting Matters report. Since 2021, BlackRock’s support for ESG-related resolutions has dropped from 40% to just 4%, coinciding with a broader decline of shareholder activism.

This raises the question of the role of long-term asset owners in shaping BlackRock’s evolving strategy. While State Street has started to feel the heat with the People’s Partnership in the UK and Akademiker in Denmark significantly scaling back mandates, we have yet to see similarly bold action from other large managers who have walked back net zero commitments.

There is a reason for this. BlackRock and other major managers now offer clients split voting options. This allows institutional investors to maintain stewardship principles without managers taking accountability for climate-related votes. Yet voting records from the last two AGM seasons suggest this approach does little to hold fossil fuel producers accountable, if anything support for climate resolutions at Fossil Fuel AGM's is declining. Is it is enough for asset owners to exercise influence over their share of the votes while their manager is taking the opposite stance? This strategy could come under increasing pressure. 

For managers, the big question going forward is whether this dual strategy can hold. Can firms position themselves as major green infrastructure investors across private markets, while simultaneously pulling back from stewardship efforts in listed markets?

In 2023, daily shipping transits through the Panama Canal were cut from 38 to 24, causing delays and financial losses. It is estimated that 4,000 fewer ships would have been able to pass through the canal in 2024. A poignant reminder to Mr Fink and to all of us that climate change is already leading to real-world consequences for global infrastructure investors.