19 Jul BlackRock Does What BlackRock Does
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
Finks Gonna Fink
It was roughly a year ago that Larry Fink, CEO of the largest asset manager in the world, announced that he no longer believed in “ESG.” Or at least he said he didn’t believe in the term and didn’t want to use it any longer. It’s become too controversial, he said, too politicized, an embarrassment.
The presumption in some circles was that Fink had had a bona fide revelation, that he had really come to understand that focusing on something other than pecuniary assessments of a company’s performance and potential was mistaken. He spent the next several months walking back some of his more aggressive and more infamous proclamations about the inevitability and imminence of the “energy transition,” as well as making deals with and enjoying the company of the fossil fuel titans of the Middle East. He did everything he could to convince those willing to believe that he was not the same old Fink, that he really had come to the conclusion that politics and investing don’t mix, particularly when the politics in question threatens to wreak economic havoc on the corporations, economies, and nations that adopt its tenets.
Less credulous observers, of course, remained weary, assuming that Fink was playing a cynical game and had not had a change of heart after all. They worried that Fink intended to say one thing in front of the cameras, while continuing to carry on as usual when people weren’t paying quite as close attention.
Some of those observers – yours truly included – never really needed confirmation that their suspicions were accurate. They understood what was happening. They understood that everything Fink and BlackRock did – from offering fund owners a “choice” in how their proxies are voted to supporting fewer and fewer ESG shareholder proposals – was not just a part of the plan but was, perhaps, the most important part, the means by which they would address real and serious grievances without actually doing anything to change the more serious issues – namely the engagement they carried out with companies behind closed doors. They would address their ESG shortcomings, in brief, just not the shortcoming that actually impact corporate behavior.
Still, if proof was unnecessary, Fink and his colleagues couldn’t help themselves, and over the past couple of weeks have provided all the proof that anyone might need that their change of heart on ESG was somewhat less than earnest.
Despite the evidence that its ESG business is struggling – along with the ESG business in general – BlackRock recently updated its decarbonization investment guidelines, while, at the same time, allocating $150 billion to funds screened for energy transition considerations:
Though based in Europe, these guidelines could impact US funds, a company spokesperson confirmed.
The new policy expects affected funds to consider shareholder proposals on Scope 3 greenhouse gas emissions and climate-related lobbying activities….
$150 billion is not exactly pocket change. And considering Scope 3 admissions is not exactly moderating ESG focus or abandoning the practice to facilitate a more economically sensible energy transition.
Of course, one might, at least, argue that such a move by BlackRock serves a certain market and addresses a specific client interest, given Europe’s more aggressive obsession with climate. Fink’s latest declarations on Bloomberg Television, by contrast, are something else altogether:
Real impact from what climate risk is doing from flooding, from fires, so we’re seeing a big impact. And so the faster that we could find ways to mitigating the rising temperatures, I would say the more just society could be. We don’t have much time… As Bill and his book wrote about we need to employ $50 trillion to get to a green world…
This is not merely an overtly political statement, it is also, quite possibly, Fink’s most aggressive political statement in years. The studies showing that climate change may increase wildfire activity or flooding in the future are based on models that have, to date, been wildly inaccurate. The studies showing that climate change has already increased wildfire and flooding activity are even more dubious, based on what might, at best, be described as questionable evidence and reaching overtly politicized conclusions. Moreover, Fink’s entire lecture here is based – as he concedes – on the pronouncements of an aggressively political figure and his aggressively political book.
To be clear, Larry Fink is free to believe whatever he wants about climate change and the energy transition. What he is not free to do is to allow his personal beliefs to drive his company’s investment decisions and use of client funds. This is a clear and inarguable violation of his fiduciary responsibilities – not to mention an open repudiation of the things he and his firm have been saying in public about dialing back the rhetoric and being more sensible about energy matters.
Despite Fink’s public proclamations and despite the flagging ESG business overall, BlackRock is still in the game. Indeed, it is still driving the entire ESG effort. Anyone who ever believed otherwise should reconsider that belief in light of the current evidence. This fight is nowhere near over.
Note: I am traveling this week and next, and so, notes will be fewer and farther between than usual. Thanks, Steve.
