28 Mar Larry Fink, BlackRock, and Rigging the System
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.
Larry Fink’s Busy Week
Larry Fink has had a busy week.
On Wednesday, the BlackRock CEO appeared on “The Claman Countdown” on Fox Business and declared that he is “very bullish on the long-term viability of Bitcoin.” He went on to say – proudly – that his firm’s Bitcoin ETF (IBIT) is “the fastest growing ETF in the history of ETFs.”
On Tuesday, Fink released his much-ballyhooed 2024 letter to investors. While the letter unsurprisingly avoids the use of terms like “ESG,” it nevertheless mentions “decarbonization” more than a dozen times. For example, Fink notes that he’s “hearing more leaders talk about decarbonization and energy security together under the joint banner of what you might call ‘energy pragmatism.’”
Also on Tuesday, Fink sat down for a long chat with CNBC’s Jim Cramer, in which he discussed the power and promise of AI (Artificial Intelligence). Among other things, Fink declared that AI is “democratizing information” and “empowering people,” while also noting that he has talked to government leaders all around the world who want to build AI data centers and want to be global partners with BlackRock in the AI revolution.
Meanwhile, BlackRock continues to be the second-largest shareholder overall of outstanding shares of NVIDIA, the undisputed world leader in AI technology.
Taken together, all of this is evidence of two things: ESG remains (mostly) dead, and Larry Fink will pretty much say anything to make a buck.
As every schoolboy now knows and as I mentioned in the introduction to the first edition of The Dictatorship of Woke Capital, Larry Fink has long been the driver of the ESG movement. He didn’t start it, but he did capitalize on it and did turn his firm into the most important vehicle for “sustainability” advocacy. As I note in the preface to the paperback edition, however, I initially misjudged Fink as a zealot when ESG was really, in truth, always little more than an opportunity for him and his firm to expand their empire:
In the introduction to this book, I describe Larry Fink, the CEO of BlackRock, as a “true believer” in the power of woke capital. But that is incomplete. He is also a true believer in the power of Larry Fink, and in his need to do really well, whether or not he’s doing good.
One thing that investors and analysts have learned over the last two years is that a key factor distinguishing ESG funds from non-ESG funds that are otherwise almost identically composed is the commission charged. By some estimates, the commission for a fund with an ESG tag is, on average, 43 percent higher. Whether or not it is good for investors or even good for society and the environment, ESG is inarguably good for the firms that push it. Larry Fink didn’t build his company into the largest asset management firm in the world by accident, after all.
Last June, Fink famously declared that he would no longer use the “weaponized” term ESG. It had simply become too controversial for him, too “politicized” and thus unhelpful in advancing the discussion of sustainability and other really important aspects of the energy transition. Or so he said.
In retrospect, it appears more and more as if Fink was simply trying to extricate himself from a sticky situation, to give himself some wiggle room to continue to “innovate” in financial services and, not coincidentally, to continue to make piles of cash. Larry Fink had seen the future, and it wasn’t ESG
Consider, if you will, the following. And as you do, keep in mind Fink’s already busy week:
In the last few years, the US has seen a boom in cryptocurrency mining, and the government is now trying to track exactly what that means for the consumption of electricity. While its analysis is preliminary, the Energy Information Agency (EIA) estimates that large-scale cryptocurrency operations are now consuming over 2 percent of the US’s electricity. That’s roughly the equivalent of having added an additional state to the grid over just the last three years….
One independent estimate made by the Cambridge Centre for Alternative Finance had the US as the home of just over 3 percent of the global bitcoin mining at the start of 2020. By the start of 2022, that figure was nearly 38 percent.
The Cambridge Center also estimates the global electricity use of all bitcoin mining, so it’s possible to multiply that by the US’s percentage and come up with an estimate for the amount of electricity that boom has consumed. Because of the uncertainties in these estimates, the number could be anywhere from 25 to 91 Terawatt-hours. Even the low end of that range would mean bitcoin mining is now using the equivalent of Utah’s electricity consumption (the high end is roughly Washington’s), which has significant implications for the electric grid as a whole.
Oh.
Now consider this (emphasis added):
Every March, thousands of executives take over a downtown hotel here to reach oil and gas deals and haggle over plans to tackle climate change. This year, the dominant theme of the energy industry’s flagship conference was a new one: artificial intelligence.
Tech companies roamed the hotel’s halls in search of utility executives and other power providers. More than 20 executives from Amazon and Microsoft spoke on panels. The inescapable topic—and the cause of equal parts anxiety and excitement – was AI’s insatiable appetite for electricity.
It isn’t clear just how much electricity will be required to power an exponential increase in data centers worldwide. But most everyone agreed the data centers needed to advance AI will require so much power they could strain the power grid and stymie the transition to cleaner energy sources.
Fink, of course, pays lip service to the idea of supplying these data centers with “renewable” sources of energy. But as the story above notes, everyone knows that’s not going to happen. It is, literally, impossible. Or to put it more bluntly, Fink is lying.
The simple truth of the matter is this, and it is largely indisputable: one CANNOT be an advocate for Bitcoin or an advocate for the expansion of AI and still believe in the idea of an “energy transition.” Never mind being an advocate for Bitcoin and the expansion of AI. The contradictions are simply too significant to reconcile. Bitcoin and AI on the one hand are entirely incompatible with the notion of “sustainability” on the other.
Given this, one might ask what Larry Fink is doing, why he is saying one thing while simultaneously doing the opposite.
The answer to these questions, in brief, is that Larry Fink is doing what Larry Fink always does. He is looking out for Larry Fink and BlackRock – with little concern about the contradictions in his positions. He wants to advocate for sustainability and wants to belong to global anti-fossil fuel groups, but he also wants to complain that Texas is treating him and BlackRock unfairly under its law forbidding state business with anti-fossil fuel financial services firms. He wants to push the energy transition while also pushing AI data centers and their massive energy consumption. He wants to charge exorbitant fees for his ESG ETFs but also wants to run a Bitcoin ETF that is “the fastest growing ETF in the history of ETFs.” Most of all, of course, he wants to be the most famous and recognizable billionaire asset manager in the world but also wants his critics to shut up and mind their own business. In short, he wants it all, wants no one to notice the hypocrisy, and if they do, for them to keep it to themselves.
Nice work if you can get it, I suppose.
Ironically, Fink started his conversation the other day with Jim Cramer by mocking those who think “the system is rigged.” What system, they wonder, and who is rigging it?
I don’t want to belabor the point, but the answer to the latter question at least, is Larry Fink.
