BlackRock, Brookfield pipeline bids underscore an ESG dilemma

Source: Saudi Aramco

Larry Fink is among Wall Street’s most outspoken leaders when it comes to climate change. He also just placed a bid on a major fossil-fuel asset.

BlackRock Inc., which he built into the world’s largest money manager, was among finalists to acquire a stake in Saudi Aramco’s natural-gas pipeline network – a deal that on its face raises questions about Fink’s ambitions to de-carbonize the planet. 

But the move shows how hard it is for even the most climate-progressive firms to completely ditch polluting industries at a time when countries are still years away from clean energy.

Brookfield Asset Management Inc. – which hired former Bank of England Governor Mark Carney to strengthen the firm’s environmental, social and governance, or ESG, investing -– also placed a bid on the pipeline network. Whoever wins will probably realize considerable returns on an investment that may top $15 billion. As well as an obligation to investors, the firms are acknowledging that oil and gas companies will have a role to play in energy production for the foreseeable future.

“It really highlights the challenge for the world about how we’re going to get through this next 10 to 20 years while we still need conventional energy,” said Tensie Whelan, director of the Center for Sustainable Business at New York University’s Stern School of Business. 

Spokespeople for BlackRock and Toronto-based Brookfield declined to comment.

BlackRock and KKR & Co. put $4 billion into Abu Dhabi’s oil pipelines in 2019. Last month, Brookfield completed the acquisition of Inter Pipeline Ltd., which operates energy infrastructure assets across Western Canada. 

“An investment in a gas pipeline should be explained,” said Lisa Sachs, the director of the Columbia University’s Center on Sustainable Investment. “All over BlackRock’s website is a commitment to net-zero. When you’re making a bid for a major gas pipeline, one should explain how that’s consistent with the commitments and consistent with a net-zero future.” 

Fink, 69, told analysts on a conference call last month that emerging economies will need $1 trillion a year to transition to net-zero and that the world needs a coherent plan to get there.

“We are fooling ourselves if we believe by restricting supply with our traditional hydrocarbon companies, that only raises energy costs, which we’re witnessing now, and that is creating not a just transition,” he said. “We need to accelerate in a way that we’re working with our great hydrocarbon companies, not against them.”

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