It was confirmed last week that BlackRock has bailed from its $2 billion clean tech commitment to New Zealand.

Launched in August 2023, the deal was described by then-Prime Minister Chris Hipkins as 'a watershed moment'. 

At the same time, however, Brett Christophers, author of The Price is Wrong, in a Q+A interview with Jack Tame, offered a more sceptical assessment:

“The thing is the money's not there yet... they'll establish the fund, but they have yet to go on the road, so to speak, to raise that capital. And while they're doing that, there'll be ongoing discussions with the New Zealand Government... 

“Renewables investment, everywhere in the world, is a risky business. BlackRock, like other leading private sector investors, does not invest in renewables unless it has seen that a significant amount of that risk has been absorbed by other actors. So they will not have said we're going to give you this money without the government giving some form of assurance that there'll be a scheme in place whereby some of that risk will be removed.”

The Sixth Labour Government might have been willing to offer such assurances, but these did not survive the 2023 general election. 

The current Coalition Government is not in the business of derisking renewable energy. See why foreign investment withdrew from offshore wind, for example, deterred by the Coalition Government’s unwillingness to consider price stabilisation measures (such as contracts-for-difference), as well as the risks posed by its permitting of seabed mining.

Meanwhile, lest you think the Coalition Government is applying a high-minded, technology-neutral approach to energy policy, it is simultaneously using, or offering to use, the Crown balance sheet to derisk gas exploration, new thermal firming, and a proposed LNG terminal. Fossil fuel infrastructure is a risky business too. So, to this end, but only this end, the Coalition Government has tacitly accepted its role in derisking the delivery of energy infrastructure in the real world. And so this ‘watershed moment’ ultimately did not hold water.

High tide mark for green capitalism

These domestic factors are only part of the story.

2023 was the high tide mark for green capitalism globally. BlackRock’s CEO, Larry Fink, signalled in his annual letter to shareholders that the asset manager would retreat from its overt advocacy for climate action, diverging from the pro-climate themes of previous years. It turns out that, as the New York Times recently detailed, he and his company were under significant pressure:

The story of how Wall Street turned its back on climate change — how a bold attempt to transform finance collapsed — began almost as soon as Mr. Fink and his allies announced their ambitions [circa 2020] to use capitalism as a tool to save the planet. Republican politicians joined conservative activists, including groups funded by the fossil fuel industry, to engineer a sweeping pushback at what they saw as corporate America’s attempt to advance liberal policies. Their tactics involved filing lawsuits, passing laws, pulling funds out of Wall Street accounts and using social media to tarnish the reputation of individual executives, including Mr. Fink... Republican legislatures around the country introduced more than 100 bills to penalize financial companies that supported E.S.G. practices.

Republican state treasurers around the country began pulling money out of BlackRock. By the end of the year, conservative lawmakers in Texas had opened investigations into BlackRock and other Wall Street firms for their climate commitments and E.S.G. practices, and Republicans in Congress had subpoenaed G.F.A.N.Z., BlackRock and State Street.

This is a vivid case study of climate obstructionism – that is, the prevention of climate action through feigned denialism, greenwashing, delay tactics, unviable techno-fixes, and misinformation. These tactics successfully forced Wall Street’s great walkback on climate finance, even before the MAGA movement reclaimed the White House in the 2024 US presidential election.

Climate reality check

Yet, regardless of the post-truth politics and the culture wars over wokeism, the reality of climate change persists. The planet gets hotter and the financial system proceeds to diligently price in those risks. 

The Central Bank of Ireland just released a report on the risk of flooding on the credit conditions of non-financial firms. The report finds that loans to borrowers in flood-prone areas face an interest rate premium of roughly 7 to 13 basis points, and are 4–16% more likely to provide a collateral. Consequently, the Bank warns of a 'financing retreat' ahead:

“While this [research on flood-prone areas] indicates that Irish lenders are effectively pricing in this source of risk, this might prove to be detrimental for borrowers located in such areas and the issue is expected to worsen in the coming years.”

The financial economy is also factoring in the transition risks associated with climate action. The European Central Bank (ECB) recently published a working paper, Climate change, bank liquidity and systemic risk, which empirically demonstrates that climate transition risks — specifically banks’ exposure to carbon intensive borrowers — affect short-term funding costs in the European repo market:

“We find that banks with higher financed emissions consistently pay higher borrowing rates in the repo market. Quantitatively, a one standard deviation increase in financed emissions translates into repo rates that are 7–12% higher, on average.”

This is significant because the repo market is the backbone of bank liquidity and a core channel for transmitting central bank policy rates. This market’s sensitivity to financed emissions could both amplify financial fragilities and complicate the transmission of monetary policy.

What should we take from all this?

Firstly, this is just another reminder that political flip-flopping is not helping to create an attractive environment for foreign direct investment. If successive governments cannot sustain some common goals – and the Paris Agreement should surely be one of them – then we, as a country, can’t have nice things.

Secondly, we should not be naive about the role of climate obstruction. Of course, there are lessons to be learned for climate finance – about how to communicate better, how to address distributional concerns, and so on. But the intent of climate obstruction is to block no matter what, not because climate finance is unworkable in general, rather because some specific people have something to lose.

Thirdly, we should not soon forget the fickleness of the big gorillas of global capital (the SolarZero fiasco only reinforces the point). Being a household name – as BlackRock is – increases its exposure and susceptibility to influence from social pressure, litigation and political games. But we should also remember that this fickleness implies that Wall Street could easily turn again. Just as its walkback occurred amidst the recent MAGA resurgence, its climate-positive posturing peaked amidst the Sunrise Movement, School Strikes for Climate, and Greta Thunberg’s lacerating speech at Davos. In other words, campaigning works. The unrelenting realities of climate change – which we’ve just experienced again in Aotearoa – will also force a reckoning.

Fourthly, the big asset managers like BlackRock are far from being the only sources of financial capital. There is a vast universe of options, many of which have climate commitments baked into their investment mandates. There are also local sources of capital: KiwiSaver managers, post-settlement governance entities, NZ Super Fund, ACC and specialized funds like Climate Venture Capital Fund, Motion Capital and Purpose Capital Impact Fund. These too may benefit from successive governments playing strategic roles in de-risking and co-investing in innovation, but at least those benefits accrue to NZ Inc.

And finally, let us abandon the illusion of technology-neutral approaches. It isn’t just that fossil infrastructure requires derisking today, it is that fossil energy enjoys a panoply of incumbent advantages – from historical subsidies and infrastructure investment, to market structuring and standard setting, to decades of political influence and networking. In the real world, there is no neutral position, no undistorted market to begin from. It is actually a question of strategy, of deciding what type of energy system we want in light of all our policy goals – including affordability, energy security, human health, and emissions reductions – and charting a plausible course to get there.

With good strategy, we should be confident in our potential to secure global capital, and to do so by the right means for the right ends.

Dr David Hall is Policy Director at Toha Network, which is building digital infrastructure for nature and climate action. He has a DPhil in Politics from the University of Oxford and previous roles include Senior Lecturer in Climate Action at AUT University, Policy Advisor for Rewiring Aotearoa, Forestry Ministerial Advisory Group, Contributing Author to IPCC AR6 WG2, and Founding Director of the Climate Innovation Lab for sustainable finance.

A version of this article was originally published in The Transition(s) Lab.