Larry Fink fears for energy transition, warns of market arbitrage

LONDON — Larry Fink, chair and CEO of BlackRock, says the so-called energy transition toward greener power has to be radically rethought and blasted oil firms for selling out to private companies.

Speaking at the Green Horizon Summit chaired by CNBC’s Julianna Tatelbaum during the COP26 climate conference in Glasgow, Scotland, Fink praised public companies for increasing their reporting of emissions but criticized oil firms for selling parts of their businesses to private investors, and said it could create huge market arbitrage.

“We can’t just ask public companies to move forward without the rest of society. It’s going to create the biggest capital market arbitrage. We’re seeing that more hydrocarbons have been sold to private companies in the last few years than almost any time ever. That doesn’t change the world at all. It actually makes it, the world even worse, because it moves from public disclosed companies to opaque private enterprises. So, the mission is failing if that’s all you’re doing,” he stated.

Arbitrage refers to market inefficiencies that allow investors or companies to profit.

Some oil firms are selling their more polluting assets to private companies, creating more of a green narrative for shareholders. But those assets still exist, and are less transparent in private hands, Fink said. “That is not changing to a net-zero world. That’s window dressing, that’s greenwashing,” he stated.

One solution, Fink said, is to create new financial vehicles for the spin-off of oil assets, with an energy company then committing all of the proceeds of the sale to green technology. “We need to create these types of vehicles like we’ve done during [the] financial crisis with banks, we need to create new vehicles, new thought processes,” he said.

BlackRock, the world’s largest money manager, is “working with them, not against them,” in terms of its relationship with oil firms, Fink said. “The key for our hydrocarbon companies, they need to rapidly move towards a more decarbonized business model. But at the same time, they are the number one purveyor of energy, of gas and oil, in a society that still is totally dependent on that,” he acknowledged.

“We need to reimagine how we could rapidly deploy new capital into the greening of the world, but not the avoidance of hydrocarbons in the short run or we’re going to have $120, $140 oil, and that’s not a fair or just transition,” Fink added.