BlackRock, the world’s largest asset manager, recently announced the launch of a new investment platform in Saudi Arabia, with an anchor investment of $5 billion coming directly from the kingdom’s sovereign wealth fund. This move has raised significant ethical concerns, especially given BlackRock’s public commitment to Environmental, Social, and Governance (ESG) criteria. The YouTube channel How Money Works explores the implications of this venture, shedding light on what might really be behind BlackRock’s decision to partner with the authoritarian petro-state.
BlackRock’s ESG Paradox
As highlighted in the How Money Works video, BlackRock has long championed investments based on ESG criteria, a stance that seems at odds with its deepening ties to Saudi Arabia, a country known for its human rights abuses and heavy reliance on oil. BlackRock’s CEO, Larry Fink, has publicly stated that Saudi Arabia has become an increasingly attractive destination for international investments. However, How Money Works questions the validity of this claim, pointing out the inherent risks and ethical dilemmas associated with investing in such a region.
The Role of BlackRock in Global Investments
BlackRock is best known for creating mutual and exchange-traded funds that make it easier for regular investors to buy into a broad portfolio. These funds are highly popular, and even a small management fee generates substantial revenue due to the sheer volume of assets managed. While BlackRock’s management of trillions of dollars in assets has drawn criticism, it’s important to note that these are not BlackRock’s assets; the company merely manages them on behalf of millions of investors. However, this doesn’t absolve the company from criticism, especially when it comes to the questionable nature of some of its business decisions.
Expanding Operations in Saudi Arabia
BlackRock first established an office in Saudi Arabia in 2019, intending to provide financial services to sophisticated investors, according to its website. However, it wasn’t until the recent partnership with the Public Investment Fund (PIF) that the office began to take on a more active role. The stated goal of this partnership is to facilitate international investments into Saudi Arabia and other countries in the Middle East and North Africa. The potential for outsized returns in these under-invested markets is a key selling point, but the risks and ethical implications cannot be ignored.
The Risky Business of Investing in the Middle East
The video by How Money Works emphasizes that while there is potential for high returns in the Middle East, these markets are incredibly risky. Apart from oil and construction projects funded by oil, there are limited investment opportunities. This is where BlackRock steps in, acting as a middleman to ease concerns for big investors who might otherwise avoid such volatile markets. However, this raises the question of whether BlackRock’s primary motivation is truly to benefit investors or simply to capitalize on a lucrative but ethically questionable opportunity.
The Saudi Arabian Financial Sector: A Closer Look
Saudi Arabia’s stock exchange, Tadawul, is one of the largest in the world by market capitalization, largely due to the listing of Saudi Aramco, the state-owned petroleum giant. However, the exchange’s size is misleading, as Aramco’s valuation dwarfs all other companies on the exchange combined. This gives the impression of a robust financial sector, but in reality, the market is heavily reliant on oil, making it vulnerable to fluctuations in oil prices and the eventual depletion of oil reserves.
BlackRock’s Strategic Interests
According to How Money Works, BlackRock’s interest in Saudi Arabia goes beyond facilitating investments into the country. The company is likely eyeing the management of the nearly $1 trillion in assets held by the Saudi sovereign wealth fund. By establishing domestic operations in Saudi Arabia, BlackRock positions itself to not only manage this wealth but also to potentially receive investments directly into its own company. This could significantly boost BlackRock’s revenue, especially if it secures even a small percentage of the Saudi fund’s assets under management.
Ethical Dilemmas and Public Scrutiny
BlackRock’s venture into Saudi Arabia is not without its critics. The company’s close relationship with a regime known for its poor human rights record has sparked controversy, particularly among investors who support BlackRock for its ESG initiatives. The How Money Works video suggests that BlackRock has calculated that the potential inflow of money from Saudi Arabia outweighs the risk of losing ethical investors. This strategic choice raises questions about the company’s true commitment to its publicly stated values.
The Bigger Picture: What Does This Mean for Investors?
For investors who have placed their trust in BlackRock due to its ESG efforts, this partnership with Saudi Arabia might be seen as a betrayal of those principles. The How Money Works video makes it clear that while BlackRock’s actions may not be covert, they are certainly not aligned with the ethical standards the company claims to uphold. This raises broader concerns about the role of large investment firms in global finance and the extent to which they are willing to compromise their values for profit.
“Our Timeline’s Version of Vault Tech”
People in the comments shared their thoughts: “Reminder that BlackRock considers nuclear energy as much as an evil as racism.”
One person said: “Well let’s see: Evil company goes into a totalitarian country for business? Seems to be a marriage made in hell. Lmao.”
Another commenter added: “BlackRock is our timeline’s version of Vault Tech”
A Controversial Move
BlackRock’s decision to launch an investment platform in Saudi Arabia is a bold but controversial move. While the potential for financial gain is significant, the ethical implications are equally substantial. As BlackRock continues to expand its global operations, investors and the public will need to closely scrutinize the company’s actions to ensure that it remains true to its stated commitments to ESG principles.
Upholding ESG Commitments
What do you think? Can BlackRock truly uphold its ESG commitments while partnering with a regime like Saudi Arabia? What are the long-term implications of BlackRock’s investment in Saudi Arabia for global financial markets? Should investors be concerned about the ethical implications of where their money is being managed?
See the full video on How Money Works’ YouTube channel for more details here.
