WASHINGTON—BlackRock has come under criticism from U.S. senators who see a double standard in the way the world’s largest asset manager invests in Chinese versus American companies, and assert the firm is “appeasing the Chinese Communist Party.”
Sens. Kevin Cramer (R-N.D.) and Martha McSally (R-Ariz.) sent a letter to BlackRock CEO Larry Fink on June 15, asking him to explain the asset management firm’s investment strategy, which the senators say favors Chinese companies.
“BlackRock’s investments in emerging markets, such as China, contrasts significantly with your statements and actions related to your U.S. investment strategy,” the letter said.
The senators criticized BlackRock for hostility toward domestic energy producers, accusing it of punishing U.S. companies for not adhering to its strict climate change disclosures. The letter also noted that activist shareholders influenced the company’s 2020 climate commitments.
Meanwhile, BlackRock manages iShares Emerging Markets exchange-traded fund (ETF), which holds assets including China-based companies, for which audit work can’t be reviewed by U.S. regulators.
“It is in the public interest to investigate why BlackRock is not fulfilling its fiduciary responsibility and shining a light of transparency on these poorly-governed, secretive Chinese companies,” the senators wrote. “Instead, you have chosen to be punitive toward American companies to placate a small group of activist investors with a biased political agenda.”
Chinese companies that list on the U.S. stock exchanges are subject to lower disclosure requirements than their U.S. counterparts, causing U.S. investors to face risks and losses.
There were 172 Chinese companies listed on U.S. exchanges that were in total valued at more than $1 trillion as of September last year, according to the U.S.-China Economic and Security Review Commission annual report.
The Chinese regime has blocked the Public Company Accounting Oversight Board from inspecting audit work papers in China and has refused to allow its companies to follow U.S. securities law.
On May 21, the U.S. Senate unanimously passed the Holding Foreign Companies Accountable Act, to force Chinese firms to play by the same rules as American companies.
“U.S. investors have no idea their dollars are being used to potentially finance fraud, cyber and other attacks against American interests, or businesses which are extensions of the Chinese Communist Party,” the letter said.
“Given the apparent financial advantages for BlackRock to appease the Chinese Communist Party and fringe environmental activist investors, it is important to examine your firm’s hypocritical approach to investment stewardship.”
Fink had said early this year that the money manager would put sustainability at the center of its investment strategy. He said the company would move more aggressively to vote “against corporate managers who aren’t making progress on fighting climate change.”
Large institutional investors such as BlackRock have been committed to cutting fossil-fuel stocks because of environmental, social, and governance (ESG) issues and to avoid criticism from activists.
“This is an elephant in the room that nobody wants to discuss,” according to a senior executive at an investment management firm in New York, who wished to remain anonymous.
“It’s not just BlackRock. Asset managers like to market their ESG advocacy here in the United States, yet completely turn a blind eye when it comes to China, Hong Kong, and Chinese companies. It’s complete hypocrisy,” he told The Epoch Times.
“For example, Chinese commercial lenders have mandated their Hong Kong-based staffers to sign petitions to personally support Beijing’s new security legislation in Hong Kong. What does that say about such company’s governance and social stance?”
BlackRock held $6.5 trillion in assets, as of the end of March 2020. The company’s primary business is index fund management.
In response to the senators’ letter, BlackRock’s spokesperson said the fund management firm acts in the best interest of the millions of Americans it serves.
“Of the $3 trillion of equity assets BlackRock manages for its clients, more than 90 percent are in index funds. These funds seek to match the investment performance of benchmarks that are designed by third-party index providers like, for example, the S&P 500,” the spokesperson told The Epoch Times in an email.
“BlackRock does not select or choose the stocks the third-party index providers include in the benchmarks they create. Similarly, BlackRock has no influence over which companies are listed on U.S. exchanges.”
Fink’s name had been floated as Treasury secretary in 2012 to replace outgoing Treasury Secretary Tim Geithner. He could be a contender again for that post in a possible Joe Biden administration, according to a Bloomberg article.
The company has been selected by the Federal Reserve to be the sole buyer of corporate bonds and corporate bond ETFs for the central bank’s $750 billion corporate bond-buying program, as part of the federal government’s coronavirus relief efforts. BlackRock will play an administrative role in the bond-buying program.