Pros: This thematic fund focuses tightly on the energy markets with a selection of global leaders in renewable energy production.
Cons: The dominance of high-cap multinational energy providers leads to worrying exposure to fossil fuel emissions. Blackrock is also a controversial asset manager with weak ESG and proxy voting records which explains the shortcomings of their investment approach.
This Blackrock fund lacks focus on renewable energy and adequate restrictions to omit large polluters. Many of the holdings produce large amounts of renewable energy but these gains can be easily offset by the huge amount of emissions these companies produce. These multi-national companies are not pure plays which means you are directly investing in fossil fuels. Furthermore, the poor proxy voting history and weak ESG integration are disappointing for an institution with such global power. I would not recommend this as an investment if you desire to help the clean energy transition, but it is still more sustainable than your average global energy fund.
The BlackRock Sustainable Energy Fund contains $5.27 trillion in assets across 50 holdings as of 26th February 2021. This specialist fund invests at least 70% of total assets in equities of sustainable energy companies. The global nature of equity holdings and ESG policy risk give the fund a risk rating of 6/7.
The top 10 holdings have an overall weighted ESG score of 21.9, leading to a medium ESG risk which surprises me given its renewable energy focus. Evaluating the holdings we see many of the world’s largest utilities and global leaders in renewable energy production. However, many of these multinational utilities still provide fossil fuel power to a majority of their clients. For example, Nextera Energy is the world’s largest generator of wind and solar power yet provides 73.6% of its electricity from gas. Similarly, REW is Europe’s 2nd largest producer of offshore wind but also runs the largest coal fire plants in Europe, is the largest producer of CO2 emissions on the continent and has been in conflict with activists over the clearing of forests in Hambach, Germany. These unfortunate implications are not surprising for multinational utilities as they naturally will diversify into the renewable energy market but will continue to provide the majority of their energy from non-renewable fuels. Other holdings such as Vestas Wind Systems are pure-play Greentechs, but contrary to what would be desired from the fund, they are in the minority of holdings rather than the majority.
The investment criteria for this fund allows for the inclusion of some of the most polluting utility companies in the world while using a misleading dialogue to misconstrue this fact. The fund adopts a ‘best in class’ approach to sustainable investing whereby they select the best ESG issuers for each relevant sector. This policy sounds great but is caveated by the fact that “the fund may gain limited exposures to issuers that do not meet the sustainable energy and/or the ESG criteria”. This instantly discredits the previous claim as there is no transparency as to what ‘limited exposure’ entails.
Moreover, they apply exclusions to the following industries; coal and consumables, oil and gas exploration and production, and integrated oil and gas. Once again this seems extremely relevant in a sustainable energy fund as by definition non-renewable energy is not sustainable and therefore should be excluded. However, this exclusion does not cover any companies in the utility industry which provide the electricity generated from these exclusions to consumers. Finally, these exclusions have no clear thresholds which allow companies with exposure to coal and fossil fuel exploration to still be included in the fund. Overall, the ESG integration and exclusions are extremely weak which allows for global utilities to be justified through minimal renewable production which can be completely offset by their own CO2 emissions.
The fund is managed by Alistair Bishop and Charles Lilford. Bishop is BlackRock’s global head of sustainable core investing and has over 20 years of experience in renewables, industrials, clean technology, and natural resources. Charles Lilford also has extensive experience in finance with more exposure to equities and hedge funds.
BlackRock was established in 1988 and is the worlds largest asset manager with $8.67 trillion under management. They have an ESG rating of 22.8 and are identified as a laggard in proxy voting and ESG issues. Morningstar places them in the ‘basic’ category level for ESG commitment due to low voting support for shareholder-sponsored ESG resolutions. Blackrock also has very high exposure to fossil fuel development which fits in with the investments of this fund. Even in a ‘sustainable fund’, the managers have un-constrained discretion to include highly polluting companies. They are, however, stepping up engagement and garner high scores from the PRI but have a long way to go for such an influential institution.