(Bloomberg) --The world's largest investor group formed to fight climate change suffered a blow when two of the industry's biggest money managers left the coalition.
BlackRock said in a statement that its relationship with CA100+ is changing after the climate group updated its strategy. The world's largest money manager said it will shift its membership to BlackRock International, a unit that contains most of the funds focused on decarbonization. The parent company will no longer be affiliated with CA100+.
The departures are occurring during a period of heightened U.S. political backlash against the environmental, social and governance investing strategy. Republican officials across the country have launched investigations into banks and asset managers, introduced anti-ESG laws and pulled funds from firms such as BlackRock, which championed sustainable investing.
House Judiciary Chairman Jim Jordan, an Ohio Republican, called the decisions by
"I wouldn't be surprised if we see more defections, especially given that there's now a cost, such as potential litigation, that wasn't there when companies joined," said Lance Dial, a Boston-based partner at law firm K&L Gates LLP.
A spokesman for CA100+ said its members are "committed to managing climate risk and preserving shareholder value through their participation in the initiative." He declined to comment about the decisions by
After an initial period that focused on improving governance, curbing emissions and strengthening climate-related financial disclosures, CA100+ recently entered a second phase in which signatories are expected to take a more active approach by requesting that companies "move from words to action."
State Street Global Advisors, which manages $4.1 trillion, said in a statement that it considers the latest requirements from CA100+ to be inconsistent with "our independent approach to proxy voting and portfolio company engagement."
BlackRock said committing to CA100+'s second phase would raise legal considerations, especially in the U.S.
For many investment firms, climate change has left them in a bind. On the one hand, most acknowledge that they view global warming as a material financial risk to their operations and portfolios. But with ESG becoming a political punching bag in the U.S., they're taking an ever more cautious view on what actions they will take on climate, especially if that's in a group with other investors.
The Republican backlash has led the finance industry to talk less publicly about climate change and other ESG-related issues, a phenomenon which has been dubbed "greenhushing." But the reality is the decisions to leave CA100+ will likely have little impact on the industry's financing of green projects and other efforts to address climate change.
BlackRock says it manages more than $800 billion through its sustainable investing platform. Additionally, banks helped arrange a record $150 billion of green, social, sustainability and sustainability-linked bonds globally last month and they remain committed to investing in the energy transition.
Analysts at BloombergNEF estimate that $4.8 trillion of annual investment and spending is required through the end of the decade for the world to keep pace with the environmental targets of the Paris Agreement. That outlay is a long way from the roughly $1.8 trillion that was allocated last year.
By responding to the changing political zeitgeist, investors are likely missing the bigger picture of a future in which climate change is an ever more central regulatory and financial concern, according to Michael Sheren, a former senior adviser at the Bank of England who's now a fellow at the Cambridge Institute for Sustainability Leadership.
"The political winds aren't rewarding climate-active firms today," Sheren said. Withdrawing from CA100+ "sends the wrong, short-sighted signal and gives cover for others to do the same," he said.
Since CA100+ was founded in 2017, carbon emissions have continued to rise. Large emitters mostly lost their appetite to cut emissions when energy prices were elevated and governments focused on energy security following Russia's invasion of Ukraine.
