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  • Martin Fridson, CFA and Michael Livian, CFA

ESG vs. anti-ESG: BlackRock in the cross hairs

Critics of BlackRock are urging investors to avoid funds offered by the investment management firm, the world’s largest. This effort is partly related to controversies surrounding Environmental, Social, and Governance (ESG) investing. Careful thought is required to separate legitimate investment considerations from extraneous factors.


“Anti-ESG” is a new force in the investment world. It opposes taking into account environmental, social, and governance considerations in selecting securities. That approach to portfolio construction is facilitated by several rating organizations that assign ESG scores to companies.

Proponents of ESG investing hope that by favoring companies with high ESG scores, they can influence those with low ESG scores to become more environmentally and socially responsible, while also improving their corporate governance policies. One difficulty that arises is the lack of uniformity in ESG scoring. For example, suppose a company has poor environmental practices but a board of directors that is diverse by gender and race. It may obtain low ESG score from one rating organization but a high score from another. Furthermore, as a September 29, 2022 New York Times article (1) pointed out, the ratings focus on how ESG-related risks affect companies’ bottom lines, not, as ESG-minded investors would hope, on the environmental and social impact of their practices.

Another pitfall is a potential conflict between ESG objectives and investment managers’ fiduciary duty. Managers may fail to fulfill that duty if, by pursuing non-financial objectives, they hurt their clients’ returns. ESG supporters deny that such a conflict exists, claiming that poor ESG policies jeopardize companies’ profitability, so avoiding those with low ESG scores will produce superior risk-adjusted returns. So far, however, that thesis has not been upheld by the data. In June, Bloomberg reported that global ESG funds returned an average of 6.3% per annum over the past five years versus 8.9% for broader funds. For US funds, Bloomberg found ESG trailing 2.4 percentage points below non-ESG counterparts.

BlackRock in the Political Cross Hairs

Politics plays a sizable role in the anti-ESG movement. Some asset managers and financial institutions have been barred from doing government business in Texas and West Virginia for allegedly boycotting fossil fuels, a major component of those states’ economies. In many quarters, certain ESG objectives are seen as “woke” initiatives, thrusting them into ongoing, contentious social policy debates.

BlackRock is not unique in offering ESG-focused mutual funds, but with seven of the ten largest funds in the category, it is the leader in that rapidly growing segment of the investment business. Widely publicized statements on climate change and sustainable investing by BlackRock’s CEO Larry Fink have also helped to put the company in the spotlight. “To prosper over time,” Fink wrote in a 2018 public letter, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Because of its high profile on these issues, BlackRock has become the focal point of much anti-ESG rhetoric, despite its efforts to counter claims that it is anti-fossil-fuels. The company has pointed out, for example, that it has invested over $100 billion in Texas energy companies on behalf of its clients.

A separate strain of anti-BlackRock sentiment can be found on social media, a field rich in stridency and misinformation. Assorted tweeters blame the affordability problems of would-be homebuyers on BlackRock’s acquisition of residential properties, ignoring the supply impact of low rates of new home construction in recent years. Other social media devotees assert that BlackRock’s political contributions have enabled it to gain control over government policy. A general warning is in order: Relying on Twitter or Instagram as a primary source for investment decisions can be harmful to your financial health.

Sorting Out the Issues

It is not surprising that the heated and emotional tone of the anti-ESG/BlackRock discussions has left a lot of investors unclear about the issues and how they may be affected.

  • Many of BlackRock’s funds are index funds. BlackRock is the owner of the iShares exchange traded funds platform. Most of these vehicles merely seek to replicate market sectors to which investors desire exposure. Managers of these funds neither emphasize nor avoid companies on the basis of ESG ratings. A sector-focused index fund’s performance in a given period will be influenced by the market’s attraction or aversion to its sector. Fund holders need not fear, however, that their returns will be penalized by management’s pursuit of non-financial objectives such as gender diversity on companies’ boards of directors.

  • BlackRock’s actively managed (non-index funds) that are not designated as ESG funds may treat characteristics such as shareholder-unfriendly corporate governance practices as negative investment considerations. This approach, incorporating risks such as the potential for involvement in environmental accidents into in-house fundamental analysis rather than relying on third-party ESG ratings, is now being followed by many investment organizations.

  • A fund being managed in this way must be evaluated on the returns that it delivers. Certainly, if clear signs appear that the fund is likely to perform more poorly than in the past, it should be replaced with one that displays better prospects. The fact that the mutual fund company also offers ESG-focused funds has no direct bearing on that question.

  • As a final point, we believe that the ESG option should be available to investors who desire it as a matter of conscience, knowing that it may cause them to earn a lower return on their capital. Some religious-affiliated investment organizations have longstanding policies against owning securities of companies involved in alcohol, tobacco, munitions, or pornography. We hope no one would seek to prohibit such investment policies in hopes of scoring political points.

Ironically, anti-ESG stalwarts run the risk of inducing the very behavior they claim to oppose. By urging investors to avoid certain mutual funds on the basis of which firm manages it, they are introducing a non-performance-related selection criterion. Investors who take that advice could miss out on opportunities offered by funds with lower management fees or better investment results than the alternatives.


We are not taking sides on the debate between ESG vs anti-ESG supporters. We only take note of the existing evidence: as of now, ESG investing does not translate into superior investment returns. At the present time, there is not even a common widely accepted metric to measure the ESG quality of a company.

However, this evidence should not automatically lead to boycotting the funds provided by large proponents of sustainable investing such as BlackRock. Each BlackRock fund should be judged independently on its own merits. For instance, many iShares ETFs are pure low-cost index trackers with no consideration for ESG.


(1) Hans Taparia, “Don’t Believe Wall Street’s Social Responsibility Hype,” New York Times (September 29, 2002).


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