This story is part of ‘Climate & Democracy,’ a series from the global journalism collaboration Covering Climate Now.

Republican state leaders are on the warpath against BlackRock, the largest financial asset manager in the nation.

The company’s sin? Statements by BlackRock leadership that climate change is a long-term threat, and that the company will pursue investments that promote a reduction in emissions.

In January, West Virginia declared that it was barring the company from managing its state pension funds. Texas passed legislation in February prohibiting any firm divesting from fossil fuels from managing state assets. In March, the Arkansas State Treasurer March withdrew $125 million from money market accounts managed by BlackRock. This followed a letter last year sent by a dozen Republican state treasurers threatening to pull funds from banks that had made commitments in line with the Paris climate accord to stop financing new fossil fuel investments.

Despite Chairman Larry Fink’s bold statement, in his annual letter to CEOs, that “every government, company, and shareholder must confront climate change,” BlackRock pledged in a February letter to Texas officials, “We will continue to invest in and support fossil fuel companies.”

As a company holding investments in nearly every major firm in the nation, BlackRock’s change of tune did not amount to an actual change in policy—since the firm hadn’t actually divested from anything—but it still sounded like a defeat to progressives.

In reality, though, the reason red states are scrambling to pass such legislation and make these threats is because they are losing the fight. Fossil fuel firms are facing disinvestment campaigns all over the country mounted by grassroots activists. Thanks to this pressure, BlackRock and the two other largest top managers of retirement funds, Vanguard and State Street, have pledged to use their voting power in corporate governance to support a transition to a net-zero-emissions economy over time with the investments they manage.

The problem for the fossil fuel industry is that, while pro-fossil-fuel red-state officials tout the $600 billion in pension and other financial assets they oversee, that’s a tiny fraction of the $5.6 trillion in public pension funds and related assets in 6,000 separate public-sector retirement systems across the nation.

“The assets of those who believe in climate change dwarf the assets of those that don’t,” observes David Walleck in dismissing the Texas and West Virginia threats, noting that his organization, For the Long Term, works for 17 state treasurers committed to addressing climate change who collectively manage $2 trillion in assets—and that doesn’t even include New York State, for example, and many other state, city, and country funds allied with his organization’s efforts.

Public tantrums by red-state officials reflect the dramatic successes of climate change activists in pushing fundamental shifts by the financial sector, even if the steps actually taken by BlackRock and others are only the beginning of what is needed.

There is now a network of state-based activists who recognize that they can exercise real power over pension assets controlled by the states—and they don’t need the permission of Joe Manchin or anyone else at the federal level to use that power.

There is a straight line to this point from a march in New York City in June 2017—the day Donald Trump announced that he was pulling out of the Paris Agreement on climate change. Led by New York Communities for Change (NYCC), a local community organizing group, a multiracial crowd of 2000 people showed up demanding that the city divest from the fossil fuel industry. NYCC had recently launched a Climate Change & Inequality Campaign, partly in response to Superstorm Sandy and the clear threat climate change posed to the city’s future—and the worsening of racial and economic inequality in the wake of such climate catastrophes.

New York Attorney General Tish James—who was then New York City’s public advocate—spoke that night in her role as the first trustee of the city pension funds to come out in support of fossil fuel divestment. Rallies, die-ins at usually staid pension fund meetings, and other direct actions led to the city trustees’ voting in 2018 to completely divest from fossil fuels, making New York City’s $267 billion pension system the largest fund in the country at that point to join the divestment movement.

Though the fossil fuel divestment movement had started on college campuses and in the philanthropic sector, it expanded steadily throughout the early 2010s. “NYC was first big US pension fund to move,” explains the NYCC campaign’s firebrand organizer, Pete Sikora, “and it is at the heart of global capital: important in size and in a city where fossil fuel is funded.” By creating international headlines, says Sikora, “NYC asked other cities to follow and it mainstreamed divestment. Larger and larger and more and more funds began to follow.”

Along with London and other jurisdictions around the world, New York State followed New York City in 2020 in announcing that it would divest its $268 billion in assets from direct investments in fossil fuels within five years and would sell all shares in any company contributing to global warming by 2040. Beyond dumping specific fossil fuel stocks—which it is moving to do within a few years—State Controller Thomas DiNapoli is working toward a completely carbon-free fund by 2040.

“That affects the whole portfolio,” argues Sikora, “which affects car companies and the utility industry; it is demanding far-reaching changes from all companies by 2040. [And it] puts a hammer on all those companies to change their behavior. That is an extremely important thing.” New York has been joined by multiple states backing mandates of various levels of toughness, one of the most forceful being by the California State Teachers Retirement System, which has committed to similar timelines for decarbonizing its $328 billion in investments.

Because red states have never provided decent pensions for their public employees—“which is sad for everyone in those states,” as Sikora notes—“blue-state pension funds are just far bigger pools of capital” and bring more firepower to any financial fight. Why Target BlackRock?

The reason BlackRock finds itself in the crosshairs is because activists want to not just have public pension funds invest their trillions of dollars in assets in a more climate-friendly fashion but are also seeking to use those public assets to leverage changes in tens of trillions of dollars in spending by private financial firms like BlackRock. That is ultimately the only way to begin to decarbonize the estimated $250 trillion in financial assets globally.

Partly as an offshoot of its successful New York City divestment campaign, NYCC would join #BlackRocksBigProblem, a network formed in 2018 of US and international organizations from the Sierra Club to Amazon Watch to the Union of Concerned Scientists, along with grassroots action partners like NYCC, Climate Finance Action in Boston, and Break Free Switzerland.

Many people won’t even recognize BlackRock’s name, but investors know their iShares Exchange-Traded-Funds and other low-cost index mutual funds that sit in their IRAs and 401Ks. Founded in 1988, BlackRock now manages $10 trillion in assets, meaning it could buy Apple, Microsoft, Google, and Amazon outright—and still have money left over to buy Tesla as well. But the nature of its index-fund business means that instead it owns a bit of nearly every major company. BlackRock holds a 5 percent or greater stake in more than 97 percent of the companies that make up the S&P 500 index. Combined with other asset managers like Vanguard and State Street, those three firms control 25 percent of shares voting in corporate director elections at S&P 500 companies.

“BlackRock is one of the few transnational government-level entities that can affect geological history,” says Sikora. While he admits that the firm has made steps in the right direction, “Right now, overall, it is using that power to light the planet on fire by pouring money into oil and coal. BlackRock needs to change to save the planet.”

BlackRock is also a target because many of the assets that it manages are from public pensions; it depends on providing a range of consulting and other services to governments as well. The Federal Reserve itself hired BlackRock to help manage its massive corporate buying program in the middle of the pandemic.

While the concentrated power of big financial management firms is certainly cause for concern, as the American Economic Liberties Project argued in its report, “The New Money Trust,” this concentration also means that when blue-state pension funds act together, they can leverage that power across the financial landscape—which is precisely why the red-state treasurers are in such a meltdown.

“There is a powerful institutional customer lever that public pensions have: They hire BlackRock and Vanguard to run sleeves of their portfolio,” says Mary Ceruli, who led Climate Finance Action’s organizing in Boston, working with the Sierra Club and college divestment groups and SEIU, to move the Massachusetts public pension funds in an activist direction. “It sends a signal when public pension funds express concern on BlackRock not being active enough on climate change or other issues.”

BlackRock is not just concerned about losing access to the $5.6 trillion in public pension funds that make annual payments to retired public employees, so-called defined benefit plans. It also wants to access the $2.6 trillion flowing through the 401K-style “defined contribution” plans administered by state retirement programs, thereby creating relationships directly with individual retirees. That gives states additional leverage.

For asset management firms, participating in public retirement programs acts as a seal of approval of prudent management in the public mind. Firms have reason to fear being labeled by state pension funds as enemies of sustainability. Individual investors—especially the millennials whom every firm wants to attract as new lifetime customers—overwhelmingly report (70 percent of respondents in one survey) taking into account companies’ environmental practices along with other social issues when deciding where to invest their money. Although many correctly express the belief that such social investing reduces market risk and improves returns, more than half say they are willing to sacrifice some performance on investments to achieve such goals—including 75 percent of millennial investors..

Climate change activists are particularly focusing on what are known as Target Date Funds that adjust the mix of stocks and bonds as workers approach retirement, since an estimated two-thirds of savers park retirement savings there. Activists note that BlackRock moved swiftly to exclude Russian assets from their core index funds after the Ukraine invasion; similarly, they argue, firms could remake them to be climate-safe as well.

What climate change activists and now allied public pension fund managers are also demanding is that BlackRock and other firms use their control of shares in firms to change those firms’ behavior voting on shareholder resolutions and board elections to make management operate their firms in a more climate-friendly manner.

And they are getting results. “Three years ago, BlackRock and other asset management firms said they didn’t use their shareholder votes,” explains Myriam Fallon, a media spokesperson for #BlackRocksBigProblem. “Now they actively vote. Last year they voted out three out of four Exxon board members in favor of ones who are more climate-friendly. They haven’t gone as far as we want, but they have gone forward.” BlackRock and other firms have signed onto a 2050 net zero emissions commitment, and BlackRock is preparing to present a 2030 goal.

As BlackRock makes such commitments, it encourages other firms to think twice about new investments in fossil fuel companies. As financial analyst David Carlin recently argued in Forbes, “Fossil fuel mining, exploration, and extraction all are capital intensive activities that demand constant access to capital. If capital costs rise or the supply of capital is reduced, projects can become uneconomical and fossil fuel companies can see their valuations fall.”

Private-equity firms have increasingly abandoned new fossil fuel startups. Where the majority of private equity went to conventional energy funds as recently as 2015, by 2020 the majority was going to renewable funds, with only a minimal amount going to the conventional fossil fuel investments. If BlackRock and other firms say they won’t be buying such assets in a few years, many investors are asking “who will buy this business in five years’ time,” says Philippe Poletti, head of the buyout team at private-equity firm Ardian.

The goal of climate change activists is to leverage every public asset to force every firm to decarbonize. They are building alliances with private US pension funds, which manage $3.6 trillion, as well as with the rest of the $35 trillion in global pension funds in the developed world, both public and private, which if properly mobilized can have a decisive impact on global financial markets.

Climate change activists are also eyeing another massive pot of financial assets, namely the insurance industry. “Insurance companies both assess risk and are asset managers. Think about flood insurance or folks losing home insurance due to wildfires,” notes Moira Birss, another leader at #BlackRocksBigProblem and climate director at Amazon Watch. “Insurance regulation happens almost entirely at the state level, so that is a place where state action could have an impact.” Globally, insurance companies hold $40 trillion in assets—$9.7 trillion by US insurance companies alone—to cover anticipated losses, losses that will only grow if climate change is not checked. There is plenty of room for state-based activists to encourage more sustainable investments by insurance companies with the assets they manage.

In multiple states, activists are still working to get some public pension funds off the sidelines and getting the rest to be more ambitious in their goals. Part of what’s needed is to have more progressives recognize the power of these state-controlled pensions.

“One thing I’ve noticed over the years,” argues NYCC’s Sikora, “Climate activists put an enormous effort into moving US government action and policy, but for the same energy, you can put a lot of heat on Wall Street. I do think pension funds are an underused, important lever for positive social change.”