The skirmish between the New York City Comptroller and Blackrock over climate alignment of the city’s public pension funds – a fight worth a $42 billion mandate to Blackrock – highlights the complexity and impracticality of aligning climate expectations, reporting requirements and business imperatives.
BlackRock, the world’s biggest asset manager, has hit back at calls from New York City Comptroller Brad Lander that three of the city’s largest pension funds drop the asset manager.
Lander, who ends his term as NYC chief financial officer and fiduciary of the city’s $300 billion pension fund portfolio at year-end, called on the Teachers’ Retirement System of the City of New York (TRS), New York City Employees’ Retirement System (NYCERS), and NYC Board of Education Retirement System (BERS), to axe a $42 billion passive mandate with BlackRock because it doesn’t meet their climate expectations.
It is time, wrote Lander in a letter that expressed both the honour and responsibility of his tenure, for these pension funds to evaluate other managers more aligned on climate and with alternative net zero and decarbonisation strategies.
BlackRock has hit back, accusing Lander of playing politics with public pension funds.
“You accused BlackRock of abdicating its financial duty and putting New York City’s pensions at risk,” wrote Armando Senra, managing director and head of the Americas for BlackRock’s institutional business in a public statement. “These statements are another instance of the politicisation of public pension funds, which undermines the retirement security of hardworking New Yorkers.”
He continued: “Any change to one of the five pension plan portfolios would be subject to a review process involving the plan’s board, the NYC BAM investment team, and other relevant stakeholders. Should they take up your recommendation, we look forward to demonstrating the breadth and depth of our capabilities and the tremendous value we deliver to NYC BAM and 750,000 dedicated public servants.”
Comptroller Lander also called for the New York City funds to drop asset manager Fidelity (which manages $384 million for TRS) and PanAgora (which manages $358 million for both TRS and NYCERS) for the same lack of ambition on climate.
A mandate appraisal that fell short
Lander’s call to axe the three managers follows a reappraisal of its mandates across climate alignment. The evaluation process, begun in April this year, revealed 46 of the system’s 49 active and passive public markets managers submitted decarbonisation plans that met NYC pension funds’ climate expectations.
But Lander said BlackRock’s interpretation of new guidance from the US Securities and Exchange Commission under the Trump administration is conservative and restrictive, unlike other asset managers. For example BlackRock’s policy contrasts to State Street, the pension funds’ second largest asset manager and which oversees a total of $8 billion in US equity index assets.
“State Street’s approach to climate stewardship demonstrates that it is possible for a large global equity index manager to meet the systems’ climate expectations in ways that BlackRock has not demonstrated it is willing to do,” wrote Lander.
BlackRock’s huge size means it owns more than 5 per cent of approximately 2,800 US listed companies, far more than other investors. Last February the SEC issued new guidance on investor activism, imposing more onerous regulatory requirements on fund managers that may be seeking to influence corporate behaviour. The SEC requires firms with 5 per cent ownership to file form 13D with the SEC if they communicate with those companies on proxy voting matters.
BlackRock argues that this position is not simply a matter of filing a longer, more complicated form, but could materially affect its ability to execute index investing for its clients. Moreover, filing a 13D requires a 10-day pause in trading, which would prevent BlackRock from buying or selling the security in order to maintain the index exposure to it, potentially leading to tracking error during that period.
Lander also criticised BlackRock’s climate reporting because it is set at a “very high level” that does not provide specifics about engagement outcomes, with the exception of limited anecdotal “spotlight” columns in their annual stewardship report.
Blackrock’s history of climate integration goes back to 2021 when chief executive Larry Fink announced in his annual letter the company would put climate change centre-stage across its $7 trillion portfolio (Behind Blackrock’s climate pledge). Since then the manager has been put through its paces including in Texas where it was blacklisted by the state legislature and public funds were banned from investing with the manager due to anti-Texas policies, and then three years later it was re-instated. (Texas politicians reinstate BlackRock as manager’s ties to the state grow)
fossil fuel infrastructure on the chopping block
Lander also expressed his ongoing support for the city’s pension funds to cease future investments in midstream and downstream fossil fuel infrastructure in private markets like pipelines and LNG terminals – the strategy would have no impact on existing investments.
“Most midstream and downstream assets are capital-intensive and long-term in nature, and the long-term outlook for fossil fuels is negative as the economy transitions to low-carbon energy. There is no guarantee that future midstream/downstream investments will continue to generate excess returns. Taking this critical step will ensure that the systems’ private markets investments are not financing fossil fuel infrastructure that will make it harder for the planet to limit global warming.”
He also called for ongoing direct engagement with high emitting portfolio companies, independently from the pension funds’ asset managers, particularly targeting utilities which collectively represent about 20-30 per cent of the systems’ financed emissions.
Lander’s climate legacy
Lander has overseen ongoing progress on climate investment at the Bureau of Asset Management, home to the pension funds’ investment teams since he took the helm in 2021. The pension funds divested from thermal coal in 2016 and voted in 2021 to divest from fossil fuel reserves in public equities and corporate bonds portfolios, as well as commit to net zero emissions by 2040.
He has also ratcheted up pressure on asset managers, setting out standards by which public markets asset managers’ net zero alignment plans should be evaluated, and putting those that don’t measure up on watch.
Managers have been asked to engage portfolio companies on decarbonisation, incorporate material climate change-related risks and opportunities in investment decision-making and ensure a robust and systematic stewardship strategy.
Milestones include collectively reducing emissions by 37 per cent since 2019 and engagement with companies, particularly in the utility and financial sectors.
“These strong actions on climate have taken place while the systems have achieved a strong 10.5 per cent combined net investment returns for FY2025, which exceeded their actuarial target of 7 per cent,” wrote Lander.
