President Joe Biden’s top economic adviser has vowed to put “solving the climate crisis at the center of creating jobs.” But during the three years he spent in charge of “sustainability” at the world’s largest investment firm, the company increased its holdings tied to deforestation.
At first glance, Biden’s decision to install Brian Deese as director of the National Economic Council seems to align with the aggressive posture on climate issues he struck during the campaign, when he vowed to take the nation to net-zero emissions by 2050 and threatened Brazil with economic sanctions should it fail to better protect the Amazon rainforest. Biden even hailed Deese, who helped negotiate the Paris Agreement to contain global carbon emissions for ex-President Barack Obama, as the first NEC director “who is a true expert on climate policy.”
Yet Deese’s appointment nettled good government groups and progressives, since he had spent much of the Trump interregnum working for investment giant BlackRock. Perhaps more concerning to environmental activists, The Daily Beast found that during his 2017 through 2020 tenure, the massive asset manager maintained or increased its holdings in companies widely blamed for destruction of forested regions of South America—including at least one corporation co-owned by the same Brazilian government Biden threatened to sanction.
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The White House declined to comment on the record, although a source there asserted that Deese did not directly handle investor funds or interact with leadership at companies, but only provided research and analysis. Asked for a sample of his work at the company, BlackRock emailed The Daily Beast a podcast he appeared on in 2020, in which Deese described how environmental, social, and governance—or ESG—issues were becoming as fundamental to assessments of a company’s viability as its debt load and liquid assets.
“If you take the best of a traditional investing approach, and you actually build into that considerations about what we refer to as sustainability factors about how the environment or climate change is going to affect investment, about how a company is managing its stakeholders,” Deese remarked in the interview with ‘Business Casual’ that BlackRock shared, “you can actually generate a better long-term outcome, a better long-term financial outcome for your client.”
At BlackRock, Deese held the title of Global Head of Sustainability, and he and his team were responsible for “identifying drivers of long-term return associated with environmental, social and governance issues, integrating them throughout Blackrock's investment processes, and creating solutions for our clients to achieve sustainable investment return,” according to a cached version of his professional page on the BlackRock website.
In multiple interviews and corporate memos, Deese made clear that his team’s role was to determine whether a company ran financial risks related to climate change or natural resource mismanagement, and/or faced potential backlash from investors or consumers over its corporate comportment, and to incorporate that information into BlackRock’s investment strategy. In repeated public appearances, Deese argued that there was no contradiction between pursuing “environmental, social, and governance” goals and maximizing returns.
“If you’re not a climate-aware investor, you’re fundamentally not doing your job,” Deese declared at the Investor Summit on Climate Risk at the United Nations in 2018.
This theme, of the absolute necessity of bringing sustainability considerations into all investment decisions, is one Deese revisited again and again in BlackRock reports and public appearances.
"The core elements of BlackRock’s approach to ESG integration are: 1) driving research and insights to understand how fast-improving ESG data influence investment performance,” reads a brief titled “Sustainability: the Future of Investing” that Deese co-authored in early 2019. “And, 2) integrating this effectively across our firm-wide investment processes to help achieve better financial outcomes."
In other words, Deese’s role at BlackRock was to provide eco-friendly oversight and insight across the company. At some investment firms, this role might have been considered window dressing—a job to apply a green tint to an otherwise environmentally hostile enterprise. If so, it’s one of the more elaborate decorating jobs imaginable. Sources described Deese as standing at the center of BlackRock’s “serious as a heart attack” effort to make environmental and sustainability top priorities, central to its business model. It’s of a piece with the yearly letter BlackRock CEO Larry Fink sends to fellow chief executives, urging them to take climate change seriously. Several environmentalists voiced admiration for Deese’s record back in the Obama administration, and told The Daily Beast they viewed his 2017 hiring as a promising sign.
"There was some hope that Brian Deese would have immediately started shaking up BlackRock and started moving it toward greater climate consciousness,” said Jeff Conant, director of the International Forests Program at the nonprofit Friends of the Earth.
Conant did applaud BlackRock for joining the Climate Action 100+, a coalition of investors committed to urging companies to reduce carbon emissions, last year and for growing more vocal on environmental issues generally. Deese was part of the public relations effort around the latter, as he was when the company moved in 2018 to share the ESG ratings of its entire portfolio with the public and clients alike.
But at the same time, environmental groups like Friends of the Earth found BlackRock’s behavior hadn’t matched its rhetoric. In 2019, the group—in concert with the nonprofit Amazon Watch and the financial research company Profundo—declared the firm the “world’s largest investor in deforestation,” and generated a report titled BlackRock’s Big Deforestation Problem. Released amid devastating fires in the Amazon, the study found that BlackRock had steadily increased its investments in the agribusiness concerns chiefly responsible for the destruction of tropical jungles by more than half a billion dollars in the period between 2014 and 2018, with its holdings peaking in the second quarter of the latter year.
Despite a notable drop-off in funds funneled into pulp and paper companies the previous year, the report noted it had increased its holdings in beef and palm oil, industries highly destructive of the Amazon and Indonesian rainforests, respectively. This report echoed findings of an Amazon Watch report issued earlier in the year, which noted BlackRock continued to hold atypically large shares of agricultural giants Archer Daniels Midland and Bunge which—despite longstanding zero-deforestation pledges—have continued to face public criticism and, in the case of Bunge, government fines for obtaining soybeans from newly cleared land.
As late as September 2020, the watchdog group Planet Tracker noted that BlackRock was still creating new and exotic funds that included positions on companies such as Tyson, which it pointed out is “linked to deforestation through soybeans” used in its animal feeds. (Tyson, for its part, told The Daily Beast that an analysis it paid for found 94% of its global supply chain had “low to no risk of being associated with deforestation,” and that it committed to a new standard in November 2020 to address the remaining six.)
These were matters that Deese was well versed in. While working for President Obama, he helped negotiate an anti-deforestation accord with the federal government in Brasilia.
Perhaps most striking, though, was the growth in BlackRock’s investments in JBS, the world’s largest meat producer, during Deese’s tenure. Between 2019 and 2020 alone, based on figures from Friends of the Earth and the non-governmental organization coalition Forests and Finance, BlackRock’s investments in JBS swelled from $58.1 million to $222.68 million. This catapulted the firm from JBS’s sixth-largest shareholder to its third, lagging only the holding company belonging to the flesh-peddler’s founding family and the Brazilian National Development Bank—a lender controlled by the same Brazilian government Biden threatened with sanctions.
This occurred in spite of widely-reported issues around JBS’ environmental, social, and governance practices.
In 2017, just a few months before Deese joined BlackRock, Brazilian environmental authorities fined JBS $7.7 million for knowingly purchasing beef from illegally deforested land. Nonetheless, investigations published in 2019 and in 2020 found the company to acquire cattle from rainforest that had been unlawfully converted to pasture.
The tracking platform Transparent Production Chains for Sustainable Economies has consistently found JBS operations run the highest risk of contributing to deforestation of any protein producer in Brazil. And, last year, a report by banking giant HSBC that the Bureau on Investigative Journalism asserted that JBS has “has no vision, action plan, timeline, technology or solution” for ensuring that the cattle it harvests did not originate on illegally deforested land.
"When it comes to agribusiness companies in the Brazilian Amazon, JBS I would say is far and away the worst actor,” Moira Birss, Amazon Watch’s climate and finance director, told The Daily Beast.
The company’s problems, Birss noted, go beyond the environment though. In 2017, JBS admitted in its home country’s courts to paying $123 million in bribes to 1,829 politicians in the South American nation. This resulted in the company having to disgorge $27 million last fall as part of a deal with the Securities and Exchange Commission for violations of the U.S.’s Foreign Corrupt Practices Act.
Reports in 2017, 2019, and just last month discovered evidence of slave labor practices in JBS’ supply chain. Yet BlackRock funds that held JBS stock, swelling with increasing investor cash, have routinely received ESG ratings in the A to BB range, reflecting average—as opposed to “leader” or “laggard”—performance.
“What happened there?” Friends of the Earth’s Conant wondered. “Why under Deese’s tenure did BlackRock's holdings in JBS, a corrupt company known to be deeply involved in environmental and labor abuses, go up?”
JBS insisted to The Daily Beast that it now uses satellite technology to ensure “100% of its direct suppliers of beef cattle are in compliance” with deforestation and labor laws. Still, it seemed to acknowledge a continuing inability to track animals’ complete travel and location history, and thus an inability to guarantee no violations occurred “upstream of its direct supply chain.” It blamed this problem on local laws.
BlackRock, for its part, asserted that it makes very few choices about what its funds contain or what its customers demand. The bulk of its business is in so-called “passive investments,” in which customers’ dollars follow a bundle of companies—called an index—that a third party compiles. The $110 billion behemoth insisted the only power it has is to advertise newer, greener financial products alongside with its older, less socially and ecologically conscious offerings.
“Every dollar that BlackRock manages belongs to our clients, and more than 90% of our equity assets are invested in index-based funds that our clients choose,” a BlackRock spokesperson said. “We cannot selectively divest from individual companies in indexes that may present sustainability risks. To help our clients invest more sustainably, we dramatically increased our lineup with nearly 100 new ESG-focused funds last year, more than 50 of those new funds were index products.”
The company further asserted it had “engaged” with JBS over its practices, though details on what this entailed were sparse, and that it voted against the re-election of three members of the company’s fiscal council last year.
These claims run against multiple studies finding that BlackRock votes against shareholder resolutions on deforestation and the climate broadly the overwhelming majority of the time. And advocates for investor transparency and accountability argued to The Daily Beast that BlackRock is not so hobbled by its own business model.
As You Sow, a shareholder accountability group, asserted that the company could—if it chose—deviate from the indices in how it weights companies in passively managed funds, so long as it notified investors. This is a cause the group’s CEO and founder, Andrew Behar, told The Daily Beast Deese could have championed as sustainability head.
“Send a very clear message: ‘We have a benchmark of standards. If you don’t meet them, we will decrease our holdings of you in our managed funds and we will underweight you in our index funds,’” he said. “That message, sent across the holdings of BlackRock, would cause massive change.”
BlackRock insisted it cannot do this, though it would not specify whether this was for legal or contractual reasons, or simply because of internal or industry policy. Other advocates argued that BlackRock has further powers it could apply. Wolfgang Kuhn—a former asset manager at UBS and Deutsche Bank, and now an accountability advocate for the U.K.-based group ShareAction—asserted that powerhouse firms have great influence over the third parties that create indexes. If it wanted, the firm could lean on those third parties to drop companies that fail on environmental, social, and governance issues, using its tremendous weight as the world’s biggest investment funds.
It could also stop accepting new investments into funds that include companies engaged in deforestation and other deleterious activity.
“Indexes are not a God-given reality; there are choices,” Kuhn argued. “If you didn’t offer something, the client couldn’t demand it.”
Moreover, not all of BlackRock’s holdings in JBS are in index funds: the Daily Beast identified more than 7 million shares of the company in what appear to be actively managed funds, where a portfolio manager might invest and divest from companies according to their own wisdom and strategy.
Deese is one of three former BlackRock employees to find a home in the new administration. Former global chief investment strategist Michael Pyle has become Vice President Kamala Harris’s chief economic adviser, while Biden nominated Adewale Adeyemo—BlackRock CEO Fink’s ex-chief-of-staff—for deputy Secretary of the Treasury. John Kerry, special envoy for the climate, went out of his way to highlight the company as an example of eco-conscious investor at a press briefing last month.
“But there’s a new—new awareness among major asset managers and commercial banks and others about the need to be putting resources into this endeavor because it is—it is major in investment demand,” said Kerry, pointing to Fink’s latest epistle to CEOs.
—with additional reporting by Noah Shachtman
