Can BlackRock “Serve a Social Purpose”?
By Saanvi Kapoor • 6 min read
In 2018, Larry Fink, the Chairman of BlackRock, the world's largest asset management firm, sent the CEOs of its holding companies a memo titled, “A Sense of Purpose.” The letter outlined that their companies must contribute to society and serve a social purpose to achieve their full potential. Two years later, Fink released a follow-up memo warning his CEOs that they were facing a potential time bomb as investors awoke to the climate crisis and that sustainability should be the new standard for investing.
The release of these memos had a significant impact on Wall Street. According to Bloomberg, this move transformed ESG into a mainstream tool for investors, thus increasing the influence of private organizations in the public sphere.
But what made this memo so notable? Although not a well-known company, BlackRock has significant influence over markets worldwide. As reported by Bloomberg, BlackRock manages more than $7 trillion in investments across banks, big pharma, media, and 10% of stocks traded worldwide. Perceived as “the fourth branch of government”, it is fair to say Blackrock holds positions in almost every industry imaginable.
It is worth considering whether a company like BlackRock, which maintains a significant stake in industries that are not traditionally aligned with ESG values, such as fossil fuels, can genuinely use its power for good and adhere to these values it promotes to its holding companies. Or, is it all form of greenwashing and a superficial attempt to appear ethical?
Furthermore, it is worth analyzing what the impact of BlackRock’s actions means for the future of the industries we are entering, and how it may alter the balance of private influence on our public sphere and personal lives.
Media Influence: Creating conversations or meeting an investment standard?
In 2021, BlackRock invested in Clarity AI to improve its current risk analytics and impact measurement platform, Aladdin. According to Businesswire.com, Aladdin is used to help BlackRock clients “understand their investments’ social and environmental impact and risks” from an ESG perspective and aim to “build more sustainable portfolios.”
One organization using Aladdin is a media giant we are all familiar with: Netflix. With 6.2% shareholder equity, Blackrock maintains significant influence over Netflix – enough to even change the way Netflix presents itself and its content.
BlackRock’s acquisition of shares in Netflix prompted the media giant to improve its ESG score in order to align with Netflix the investment firm's qualitative market standards. This, in turn, led to Netflix producing a larger quantity of shows, often with politically opinionated content, while diluting the quality, award-winning plots of movies and TV shows that have already existed on Netflix.
This has been a common trend in the entertainment industry, as media giants are becoming more conscious of the content they output, opting for more diverse representation and socially progressive narratives to better fulfill their investors’ standards for ESG scores. However, one may argue this exemplifies ‘empty representation’, or a form of ‘blue-washing’, where showcasing specific content solely to reach benchmarks can be deemed as “a marketing gimmick aimed at raising profits or appeasing regulators.”
This benchmark pursuit defeats the purpose of having a platform with diverse shows when curated content may only leverage social objectives as a means of making more money.
Even audience members are noting this shift in content and quality. Author and political satirist Tim Young says that “Netflix and its original programming have forced diversity in their programming so much so that it's become a caricature of diversity itself,” with diversity-checklist-oriented shows such as He’s Expecting.
As a result, Netflix has experienced low ratings and an unsatisfied audience. Once the dominant market player in the streaming industry in the mid-2010s, in the first quarter of 2022, the platform lost 200,000 subscribers and its stock crashed to a four-year low. Despite the losses and dips in subscribers, Netflix continues to produce perceived lower-quality content.
From a viewer’s perspective, it seems as though the standards implemented on Netflix were for the purpose of achieving a particular ESG status, rather than producing true ESG impact in the entertainment space. This trend most likely won’t change, as why would any of BlackRock’s holding companies take the risk of defying the firm?
Environmental Impact: 2-sided sustainability?
As part of its stricter ESG strategy in the last few years, BlackRock has been moving money away from high-risk sectors, including the thermal coal industry. The firm announced that it would be divesting from companies that generate more than 25% of their revenue from thermal coal production or coal used for power production.
This is a positive reflection on BlackRock, indicating that the company is staying true to the values it is instilling upon its holding companies and reinforcing its commitment to ESG-oriented investments. As a result, BlackRock is likely to encourage other players in the investment industry to follow suit in shifting investments from non-sustainable initiatives into ESG-oriented companies’ ventures.
However, while BlackRock advocates for divesting in fossil fuels, BlackRock’s Big Problem, a coalition of NGOs, reports that the firm simultaneously invests in companies that destruct the environment through deforestation while impeding Indigenous rights in the process. This leads to the question of whether BlackRock can call itself a company that is contributing to society while investing in initiatives that leave the world with contradictory and empty promises.
So What?
As the world’s largest asset management firm, it is necessary to consider the positive and negative sides of BlackRock’s impact. On the one hand, its values and investments set a precedent that the rest of the industry will strive to meet in order to compete in a space increasingly encouraged to make a positive ESG impact. On the other hand, it is important to recognize that this firm has more influence on markets than most governments, insinuating that it can drive more societal change than our elected policymakers.
BlackRock’s magnitude has implications on a micro level as well. The firm’s influence on its holding companies, such as Netflix, can potentially have a negative impact on brands as they try to adapt their business model in alignment with social progression, which for those with inexperience, could result in insincere greenwashing or bluewashing efforts, rather than driving genuine impact.
BlackRock is a stakeholder in companies all across the world – even if we are conscious of the firm’s controversial impact, it is nearly impossible to avoid the companies or media platforms they influence. Considering this overarching power, what can we do as consumers?
As students and aspiring employees, it is crucial for us to acknowledge and critique the regressive nature of these investments that influence our society. As stakeholders, we must question the practices and ethics of companies that wield significant financial influence and hold them to a higher standard of social responsibility. In doing so, we advocate for shaping an equitable, just, and transparent society for all.
Sources:
https://www.minterellison.com/articles/blackrock-annual-letter-to-ceos-2018
https://qz.com/1784949/blackrock-ceo-larry-finks-2020-letter-backs-up-climate-rhetoric-with-action
https://www.businessinsider.com/what-to-know-about-blackrock-larry-fink-biden-cabinet-facts-2020-12
https://blackrocksbigproblem.com/
https://www.youtube.com/watch?v=ZKX5PW2cZwo
https://www.investopedia.com/articles/markets/012616/how-blackrock-makes-money.asp
https://www.nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html
https://www.foxnews.com/media/netflix-elon-musk-woke-mind-virus
https://variety.com/2022/digital/news/elon-musk-netflix-woke-virus-subscriber-loss-1235236688/
