Asset managers’ green U-turn exposes energy transition cakeism

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One of the received tenets of the energy transition was that there was no trade-off between green investing and making money. The dirtier companies were going to underperform, while the cleaner ones would roar ahead. Investors could hence starve the former of capital and provide it in spades to the latter, doing their bit for the planet while making outsize returns.

The narrative of a perfect correlation between doing good and doing well has now broken down. Witness the spate of high-level desertions suffered by Climate Action 100+, an association of investors that engages with polluting companies to reduce emissions. In a few days, it lost JPMorgan Asset Management, State Street and Pimco. BlackRock has moved its membership from the huge corporate entity to its much smaller international business.

BlackRock has attributed its decision to the potential conflict between the aim of CA100+ to get companies to decarbonise and its own fiduciary duty to prioritise economic returns, at least for those clients — the vast majority — who have not given it an explicit climate mandate.

Canny onlookers might ask why the asset managers are walking now. After all, the idea that investors could have their climate cake and eat it in its entirety was always slightly dubious, taking no account of the price at which investors could access green or grey assets.

BlackRock reckons it is CA100+ that has changed. It has attributed its discomfort to stronger language in the investor group’s new “phase 2” mission, which focuses on pushing companies to implement transition plans rather than simply disclosing them.

It is also true that the climate tide has turned. Investors have reduced support for ESG shareholder resolutions. In the US, particularly, asset managers have come under fire from Republican policymakers.

Whatever the reason, the troubles of CA100+ underscore growing concerns that climate investing is for do-gooders rather than capitalists.

This backlash puts climate associations seeking to harness the world’s trillions in a tight spot. If they want to sign up mainstream investors, they will need to limit how tough a stance they take on fossil fuels. If they aim to use their heft to influence company policy, they may find their members limited to “impact” investors, who prioritise the social effect of their choices.

It also removes a tailwind for the energy transition, which is now much less likely to be propelled to success by a wave of cheap capital. That puts the onus squarely back on policymakers’ shoulders. They will need to mandate carbon reductions rather than hoping that the market delivers them on its own.