State AGs Sound Alarm About BlackRock, Vanguard Buying Large Stakes in Utilities
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Berkshire Hathaway vice chairman says he doesn’t want Larry Fink to ‘be my emperor’
The acquisition by investment managers BlackRock and Vanguard of ever-increasing shares in America’s public utility companies is setting off alarm bells from conservatives and progressives alike.
In April, the Federal Energy Regulatory Commission (FERC) approved a request from BlackRock to increase its ownership up to 20 percent of a public utility’s voting shares without being deemed an “affiliate” and incurring the regulatory scrutiny and disclosures that come with that. To gain FERC approval, BlackRock and Vanguard promised they’d be “passive” investors and not use their share ownership to influence management.
Because utilities are often monopolies in the regions they serve and because electricity and heating are essential in people’s lives, any investment of more than $10 million in a public utility must be approved by FERC, according to the Federal Power Act (FPA). BlackRock and Vanguard received blanket approval in 2019 to surpass this limit for three years, and BlackRock was just given blanket approval for another three years. Now, Vanguard is seeking FERC approval on similar terms, but its request is sparking protests.
In November, 13 state attorneys general petitioned FERC to deny Vanguard’s request. Claiming that residents of their states could be harmed if utilities are compelled to stop using fossil fuels in favor of wind and solar power, the attorneys general argued that “Vanguard is not entitled to a blanket authorization to acquire substantial equity and voting power in utility companies.”
“Vanguard’s own public commitments and other statements have at the very least created the appearance that Vanguard has breached its promises to the commission by engaging in environmental activism and using its financial influence to manipulate the activities of the utility companies in its portfolio,” the petition stated. “A hearing in this matter is warranted to determine the extent to which Vanguard has violated the 2019 authorization and whether granting Vanguard a blanket authorization is contrary to the public interest.”
While voting to approve BlackRock’s request, FERC Commissioner Mark Christie stated: “The claim that huge asset managers such as BlackRock, State Street, and Vanguard are merely passive investors in publicly held corporations, investing purely for the benefit of their beneficiaries—many of whom are retirees receiving pensions—is no longer credible.
“BlackRock, in particular, has been openly aggressive in using its massive financial power to influence corporate policy in areas far attenuated from the legitimate money-management goals of protecting the incomes and investment interests of its beneficiaries,” Christie said.
Charlie Munger, the vice chairman of Berkshire Hathaway—the company chaired by renowned investor Warren Buffett—concurred, stating in February that “we have a new bunch of emperors, and they’re the people who vote the shares in the index funds. I think the world of [BlackRock CEO] Larry Fink, but I’m not sure I want him to be my emperor.”
Influence of the Big Three
BlackRock, State Street, and Vanguard manage the vast majority of index funds and together have become the largest shareholders in 90 percent of S&P 500 Index companies. Because of their oligopolistic position in this space, they’re often called the “Big Three.”
“A retail investor who buys an index fund does not own the stock in the fund,” a December report by the Senate Banking Committee’s GOP members stated. “Those stocks instead are owned by the fund, which means the fund’s manager may vote those shares. Even though they buy that voting power with other people’s money, that voting power gives asset managers like the Big Three enormous influence.”
Sen. Bill Hagerty (R-Tenn.) stated, “What these activists have figured out is that any radical policy that they can’t get enacted through government can be advanced through corporate America by hijacking trillions of dollars in voting rights from everyday Americans’ retirement accounts.”
The Senate report further noted that “thanks to the tremendous scale of the savings entrusted with them, the Big Three together cast around one-quarter of all votes at shareholder meetings of most S&P 500 companies. … Each of these firms proudly uses the voting power gained from the investors’ money to advance liberal social goals known as ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion).”
According to Kentucky Attorney General Daniel Cameron, “Consumers across our country are already feeling the sting of skyrocketing electricity bills, and Vanguard’s request to extend its authorization, coupled with its commitment to imposing net-zero requirements on publicly traded utilities, would only increase those costs.”
These FERC decisions come on the heels of the U.S. Supreme Court’s landmark West Virginia v. Environmental Protection Agency (EPA) ruling in June, in which the courts stated that the EPA didn’t have the authority to force America’s utilities to transition to wind and solar energy from fossil fuels. This decision was in line with the “major questions doctrine,” which states that policies of major importance to Americans must be decided by elected representatives in Congress so that citizens can have a voice in such matters.
As has often been the case in recent years, activist corporations often succeed in imposing a progressive agenda, where federal agencies fail. BlackRock, Vanguard, and State Street are the world’s largest asset managers, controlling approximately $20 trillion in investors’ money through index funds and pension plans. They’re also partners in global movements to transition from fossil fuels to wind and solar energy, joining clubs such as the Net Zero Asset Managers Initiative (NZAM), Ceres, and Climate Action 100+.
Asset managers who are members of NZAM pledge to “implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with our ambition for all assets under management to achieve net zero emissions by 2050 or sooner”—in short, to use their voting power to compel all companies whose shares they own to transition away from fossil fuels.
“These targets come out of the Paris Accord, which couldn’t even get passed through a Democratic Senate,” Will Hild, executive director of Consumers’ Research, told The Epoch Times. “Voters have rejected these net-zero by 2050 goals over and over again. So now we’re seeing this, in my opinion, illegitimate attempt to use corporate America to push these goals.”
But according to Tyson Slocum, director of Public Citizen’s Energy Program, the protest by state attorneys general was nothing more than “political theater.”
“These AGs are running for political office, and this is a fundraising opportunity,” Slocum told The Epoch Times. “I guarantee you that we’re going to see fundraising emails from these AGs to various donor databases [stating], ‘Look where we’re taking it to these big liberal institutions, and we’ve got your back on fighting against capitalism or whatever.’ Such nonsense!”
Slocum, an advocate of wind and solar power, was among the few to object to FERC’s approval of BlackRock’s expanding ownership of utilities last spring. But Public Citizen’s objection stemmed from its view that the Big Three weren’t pushing utilities hard enough to exit fossil fuels.
“We noted some statistics, with BlackRock anyway, that they abstain from a number of climate-related votes, that instead of using their voting power to push companies harder on climate change, instead they’re giving management a pass,” Slocum said.
“By failing to vote, you are sending a message to management: We’re an entity that controls a massive amount of your shares, and we’re not going to pressure you on these issues when the general public who own most of those shares actually want you to do those things,” Slocum said. “Which is very different from what the AGs are saying. They’re claiming that these companies are dictating the terms, and they’re most certainly not. In fact, the record clearly shows that they are failing to use their accumulated power to pressure these companies.”
In October, Swiss investment bank UBS downgraded the shares of BlackRock, stating that BlackRock’s “early and energetic adoption of ESG principles in its fund management and shareholder proxy activities have positioned the firm as an ESG leader, in our view. However, as performance deteriorates and political risk from ESG has increased, we believe the potential for lost fund mandates and regulatory scrutiny has recently increased.”
Vanguard pulled out of NZAM on Dec. 7, stating that “such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual asset managers.” The firm provided a statement to The Epoch Times that it was withdrawing “to make clear that Vanguard speaks independently on matters of importance to our investors.”
Vanguard’s exit provoked a harsh response from climate activists. Former Vice President Al Gore condemned it as “irresponsible and short-sighted,” while New York City Comptroller Brad Lander called it a “cowardly walk-back.”
Meanwhile, conservatives withheld applause. Years of posturing by these asset managers in support of ESG principles have left many people wary of their intentions.
“I don’t trust declarations—I trust action,” Hild said. “We are certainly going to continue to watch their activities, and if they continue using their portfolio for this, which is a violation of their fiduciary duty, then we are going to continue to hit them for that.”
BlackRock officials declined to comment on this article.
Kevin Stocklin
Kevin Stocklin is a writer, film producer, and former investment banker. He wrote and produced "We All Fall Down: The American Mortgage Crisis," a 2008 documentary on the collapse of the U.S. mortgage finance system.
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