Nebraska Investment Council takes some investment management away from BlackRock

GRETNA — The Nebraska Investment Council voted Thursday to transfer some state investment management away from BlackRock, a giant firm that some conservatives have criticized for considering environmental, social and governance factors in investing.

It marked the second time in recent months that the Investment Council has ordered changes due to concerns over so-called ESG investing, concerns that some have labeled “political theater” and wrong-headed in the face of climate change.

Under the 5-0 vote,  Chicago-based Northern Trust will handle half of the state’s $7.3 billion worth of “passive” investments in index funds, with New York City-headquartered BlackRock continuing to manage the other half.

BlackRock will remain as manager of the state’s “active” investments, which total about $40 billion for state pension funds and college savings plans.

Gail Werner-Robinson, who chairs the Investment Council, said the change was related to the eight-member panel’s concerns about ESG but added that she has been uncomfortable for some time with one firm managing all the state’s investments.

“It’s insurance,” she said, over the possibility that a lone financial manager might encounter some kind of problem.

While there might be some fees involved in shifting the investments, officials said the cost might be offset by discounts from Northern Trust, which the Investment Council voted Thursday to become its banker. The decision ended a 30-year relationship with State Street Corporation, a Boston-based bank.

Michael Walden-Newman, the state investment officer, said the change in banks was not related to ESG but was made because Northern Trust offered superior services.

The divestment of some of BlackRock’s work comes three months after the Investment Council decided to hire a third-party “proxy service provider,” Glass Lewis, to cast the approximately 50,000 to 100,000 separate proxy votes required of the state each year.

The Investment Council had previously deferred to BlackRock to make proxy votes on behalf of the state on decisions made by corporate boards.

Hiring a proxy service firm was viewed as a way to ensure that investment decisions were being made to maximize financial returns for the state, not for ESG reasons, such as divesting in things like fossil fuels.

ESG, and BlackRock in particular, have become controversial in recent years after its CEO Larry Fink declared that a company’s stance on environmental, social and governance issues should be considered in making investments.

That sparked a firestorm of complaints about “woke capitalism” from several conservative politicians and groups, including a state financial officer’s group which was then headed by Nebraska State Treasurer John Murante.

In December, then-Nebraska Attorney General Doug Peterson issued a rare policy report  warning that ESG investing represented a dangerous “endgame” and “a threat to our democratic form of government.” Two university professors, however, labeled the hubbub as “political theater” and heavy on “international conspiracy.”

While some conservative states, such as Florida, West Virginia and Texas, have investigated or divested in BlackRock, a Creighton University theologian and a group of 130 other academics said it was morally responsible to consider the impact on the environment when making business decisions.

After Thursday’s vote in a meeting room at the Tiburon Golf Course, Murante, a nonvoting member of the Investment Council, said he appreciated the council’s work on the issue. Murante was recently tapped to become director of the Nebraska Public Employees Retirement Systems.

Walden-Newman said that Thursday’s vote culminated a 1½-year study by the council into the ESG issue.