Governments — ‘not BlackRock’ — should lead the economy away from fossil fuels, economist says

Governments should be leading the global economy’s sustainable transformation, not markets, according to author and economist Ann Pettifor.

Pettifor, author of “The Case for the Green New Deal,” told CNBC on Friday that a reliance on financial markets to steer the economy away from fossil fuels was “not tenable.”

She argued that since markets and societies have different interests, government intervention would be necessary to engineer a new Green Deal with state funding. A so-called Green Deal for the global economy would see ambitious — and likely costly — targets set in an effort to move the world away from fossil fuels and reduce greenhouse gas emissions.

“We know that governments can intervene. We know that we have developed an advanced monetary system that will enable us to mobilize large sums of finance, and we did that for Wall Street, we did that when dealing with the pandemic, we know governments can do this and therefore I want to see the state take much more of a role,” Pettifor told “Squawk Box Europe.”

“I want to see public authority over the system of transformation and not private authority. I want to see the EU leading this, not BlackRock,” she added.

Her comments come after BlackRock CEO Larry Fink penned an annual public letter to CEOs in which he dubbed the transformation toward a green economy as a “historic investment opportunity” and called for greater disclosure from companies as to how they will survive in a world of net-zero greenhouse gas emissions.

Fink has maintained that climate risks and investment risks are one and the same, meaning investment managers have a fiduciary duty to direct capital toward assets seeking to address climate change.

In an interview with the Financial Times in January, Fink likened the prospective boon for climate investing to his early days trading mortgage-backed securities in the 1970s.

“In five straight years we elevated it to becoming a dominant component of global capital markets. It might take 10 years, not five years, for sustainability. But the underlying potential is huge,” Fink told the FT.

Mortgage-backed securities — bonds consisting of bundles of home loans purchased from the issuing bank — would go on to play a key role in triggering the global financial crisis in 2008.

“If (Fink) is going to extract from our ecosystem the kind of rates of return that his company extracted from mortgage securities and from our financial system, then we are in very deep trouble,” said Pettifor, who is also a director of the Policy Research in Macroeconomics network.

“He is right. He is thinking about this in terms of making huge profits for his business, but when we are talking about the finite resources of the ecosystem, this cannot be exploited for the profits of individual companies or full markets. The ecosystem is here to serve the survival of humanity.”

In its January client letter, BlackRock emphasized that retaining carbon investments in its portfolios was part of its fiduciary duty to clients.

“Because the global economy today is itself carbon intensive, the portfolios of most diversified investors – including the portfolios of BlackRock’s clients in aggregate – remain carbon intensive,” it said.

“That cannot and will not change overnight, and BlackRock’s aggregate portfolio will necessarily be subject to the investment decisions of our clients. Nonetheless, there is significant global momentum towards a net zero economy, and BlackRock believes that our clients are best served by being at the forefront of that transition.”

Since the landmark Paris Agreement in 2016, 60 of the world’s largest commercial and investment banks have invested more than $3.8 trillion into fossil fuels, according to a report published Wednesday by a collection of climate organizations.

Pettifor argued that tighter regulation on banks and investment managers is necessary to restrict fossil fuel investment, and accused governments of “profound ignorance” for allowing the same institutions that are investing in fossil fuels to take the lead on the climate transition.

“There was no change made after the last great financial crisis, and that was because they simply lobbied congress, lobbied parliaments and ensured that no changes were made and they could carry on as before,” she said.

In 2011, three years after the brunt of the crisis, the National Bureau of Economic Research published a study showing that the worse a bank’s loans performed during the crisis, and the greater its bailout package, the more aggressively it had lobbied against big regulatory reform.

“Until we actually get a grip on these companies and limit their ability to keep fueling fossil fuels, and therefore greenhouse gas emissions, there is really no hope for our future,” Pettifor added.