BlackRock’s Green Bet Pays Off as ESG Investing Holds Firm Under COVID-19

The leading global asset manager BlackRock kicked off the new decade on January 9 with a commitment to the sustainability goals of the clean energy organization Climate Action 100+. Much has changed since then. However, a new report from the global financial services firm Morningstar affirms Blackrock’s renewed commitment to ESG investing, while adding more evidence to support sustainable investing overall.

So far, ESG investing has weathered the COVID-19 crisis

Earlier this month, Bloomberg reported that ESG funds were holding more value than the S&P 500, even as the COVID-19 crisis sent the overall stock market crashing downwards.

That trend is mirrored in the pattern of cash flow for ESG funds.

Last week, Morningstar analyst Jon Hale reported that estimated first quarter flows for sustainable funds in the U.S. set a new record of $10.5 billion in positive territory, despite the surging financial storm at the hands of COVID-19.

The previous record was set in 2019, and the difference wasn’t even close.

As tracked by Morningstar, the trend took off last year when ESG funds reached a record flow of $7.1 billion in the fourth quarter. That, in turn, bested the previous record of $4.8 billion for the second quarter of 2019.

Sustainable investing down, but not all the way down

In analyzing sustainable funds, Morningstar does not cast a wide net. They report on a group of more than 300 mutual funds that broadly integrate ESG. The group does not include funds that address ESG in a piecemeal or limited way.

There was one dark spot in the overall rosy picture. Fixed-income sustainable funds began to wilt under the pressure and suffered outflows in March, a trend consistent with conventional funds.

However, sustainable funds overall remained in positive territory through March. They ended the quarter down from January’s record-setting pace of $5.2 billion for a single month but remained positive territory at $1.6 billion for the month of March.

BlackRock comes out on top

The standout performance of BlackRock during the first quarter is especially significant, considering that CEO Larry Fink has faced some criticism for steering the firm into ESG investing only on the margins.

Last year, for example, analysts with the World Resources Institute noted that BlackRock had achieved some progress but not significant change.

This year is already shaping up to mark a more intensive shift. Joining Climate Action 100+ was a significant move that puts more bite in BlackRock’s sustainability bark. The organization is part of a broader network that is aggressively pressuring corporate boards and CEOs to act on climate change.

In addition, in January Fink released a much-publicized annual letter to corporate executives, in which he nailed down the sea change that is shaping up as the millennial generation flexes its financial muscles.

“…as trillions of dollars shift to millennials over the next few decades, as they become CEOs and CIOs, as they become the policymakers and heads of state, they will further reshape the world’s approach to sustainability,” Fink wrote in conclusion.

The proof is in the pudding. In his analysis of 2020 first quarter results, Hale noted that BlackRock’s “iShares ESG ETFs proceeded to scoop up an astounding $6.3 billion during the quarter, accounting for 60% of the net flows into all sustainable funds in the U.S.”

Other top-performing ESG firms for the quarter were Vanguard, Dimensional and TIAA/Nuveen.

The stock market crisis is far from over, but it looks like the chaos will not extinguish those “glimmers of green,” as ESG investing emerges both as one solution for climate change and as a long-term recovery strategy for COVID-19.

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