27 Jun Larry Fink: I’m Ashamed (that I got caught)
Over the weekend, Larry Fink, the CEO of BlackRock, the largest asset manager in the world, spoke at the Aspen Ideas Summit and told the world that he’s tired of the ESG games. He is “ashamed” that the whole mess has become so political and has no interest whatsoever in ever using the term again. Axios, with its weird talking-to-an-eight-year-old format, has the details:
BlackRock CEO Larry Fink said he’s no longer using the term “ESG” (environment, social and governance) because it is being politically “weaponized” and he’s “ashamed” to be part of the debate on the issue.
Why it matters: How the world’s largest asset manager frames its investment approach is a leading indicator for the market. BlackRock manages $9.2 trillion.
What we’re watching: Fink’s latest statement is sure to generate plenty of controversy.
The backstory: BlackRock’s bullish outlook on responsible environmental, social and governance investing is being blasted by conservatives as “woke capitalism” and has drawn boycotts from Florida and Texas.
- Fink has been a major proponent of factoring in climate changerisks to investing strategies and corporate leadership.
What’s new: In a conversation at the Aspen Ideas Festival on Sunday, Fink acknowledged that Florida Gov. Ron DeSantis’ decision to pull $2 billion in assets hurt his firm in 2022, but made clear last year was his company’s best with net flows of $200 billion from U.S. clients.
What he’s saying: “I’m ashamed of being part of this conversation,” Fink said.
- “When I write these [investment] letters, it was never meant to be a political statement. … They were written to identify longterm issues to our longterm investors,” he told the crowd.
Yes, but: When pressed on the statement later in the conversation, Fink backtracked.
–“I never said I was ashamed,” he said, incorrectly. “I’m not ashamed. I do believe in conscientious capitalism.”
–“I’m not going to use the word ESG because it’s been misused by the far left and the far right,” he added.
There are only two reasonable ways to interpret what Fink is saying here. And to be clear, “Fink is abandoning ESG” is NOT one of those ways. Although Fink has, inarguably, been caught off-guard by the backlash against ESG, he’s not going to give it up. Not now. Not ever. In the grand scheme of things, it still makes him money (with higher fees, etc.) and it gives him what he believes to be the moral high ground. “I’m saving the earth with my company. What’re you doing?” Don’t be fooled by his apparent “second thoughts.”
The first reasonable way to interpret Fink’s newfound aversion to “ESG” is to assume that he is, understandably, trying to distance himself from a politically charged term but is, nonetheless, maintaining his intention to use his clients’ wealth to advance the goals that he thinks are most important. To put it more bluntly, he’s still going to be in the woke capital/stakeholder capitalism game, but he’s just not going to talk about it in ways that make him a target. Or as we’ve noted countless times before, stealing a line from our friend Justin Danhof, Fink wanted to be famous; he got his wish; and now he understands what the phrase “be careful what you wish for” means. He desperately wants people to stop paying attention to him and his political strategy. He wants to be made UNfamous.
Fink says he now prefers the term “conscientious capitalism.” For our part, we think the term is redundant. Capitalism – which is the greatest driver of human flourishing ever known – is “conscientious” by definition. Fink can do what he wants, though, even if it will fool no one, and has almost no chance of catching on outside of the C-suites at BlackRock.
The second reasonable way to interpret Fink’s comments is to place them in the context of the moment and to understand that this is just more sleight-of-hand on the part of the people who resent that there are others (yours truly included) who think that it is unethical and destructive to usurp shareholders’ rights to enable the usurpation of voters’ rights in pursuit of political ends that would never be sanctioned by popular approval.
Note what Fink says: “I’m not going to use the word ESG because it’s been misused by the far left and the far right…[Instead] we talk a lot about decarbonization, we talk a lot about governance … or social issues, if that’s something we need to addressed.” What he means by this is that he intends to continue coercing corporate leaders to bend to his views on ESG issues. He just doesn’t want anyone to think that these issues – “decarbonization” and “social issues” – are political. When he talks about his shame at the politicization of ESG, he means that he’s ashamed that people have figured out about ESG what Clausewitz figured out about war, that it “is simply the continuation of political intercourse with the addition of other means.” He wants us to believe that the fight over ESG is political, but ESG itself is just smart investing.
Not quite a month ago, Eli Lehrer, the founder of the R Street Institute, and Robert Eccles, one of the founding directors of SASB (the Sustainability Accounting Standards Board), published a piece in the Harvard Law School Forum on Corporate Governance in which they begged for “a Truce in the Red State/Blue State ESG Culture War.” Such an offer – made honestly and earnestly – would inarguably be welcomed. Unfortunately, this offer came with a catch:
While nothing besides a hard-to-pass state constitutional amendment can bind future legislatures, states seeking sensible ESG policy overall should try their best to insulate pension funds, other investments, and public contracts and investments from political concerns….
Standards and norms like these would assure that state officials couldn’t use a contracting or investment process to make political points. Instead, they would exercise business judgment regarding ESG factors–as a fiduciary.
Again, note the sleight-of-hand: “We should all agree to de-politicize ESG. But first, let’s agree that ESG is not political.” Lehrer and Eccles temper their demand for the acceptance of ESG by “conceding” that it should only be used in a fiduciary manner. But then, that’s the whole fight in a nutshell. ESG supporters claim that it is, by definition, a long-term, return-focused, fiduciary-compatible investment strategy. They insist that the pursuit of left-leaning environmental and social goals can’t help but be good for the world, for companies, and for investors. What Lehrer and Eccles are asking for, in other words, is unilateral disarmament by those who believe otherwise, those who think that long-term investment strategies should be informed by facts and compatible with reality.
Not quite three weeks ago, New York City Comptroller Brad Lander gave an interview in which he too lamented the “politicization” of ESG and demanded that its opponents disarm unilaterally:
Politicized rhetoric against ESG is making it harder for investment managers to consider the financial risks posed by climate change, says the overseer of the nation’s biggest municipal pension fund.
“I wish I could start from square one, when the field hadn’t already been polarized,” Brad Lander (D), comptroller of New York City, said in an interview. “I wish you could start from a place of saying, ‘Let me talk to you about what the pension obligations are that run out for decades.’”
Lander serves as a custodian of, and financial adviser to, five pension systems that are worth $248 billion and cover some 750,000 public sector workers. Three of those funds—representing teachers, transit workers, and a wide range of other city employees—have committed to achieving net zero emissions in their portfolios by 2040….
Broadly, the implementation plans lay out a strategy for emissions disclosures, interim targets, stronger partnerships with other investors, investments in climate change solutions such as renewable energy, and ultimately divestment.
Lander, a politician by trade, is more upfront about what he wants. He can’t help himself and, as a result, can’t help but make clear what’s at work here – in his comments, in Eccles and Lehrer’s article, and in Fink’s lament. All three embrace the standard left-wing response to all culture-war issues: “How dare you ‘make this political’ by noticing what we’re doing!”
In conclusion, then, Larry Fink’s comments are interesting and telling, but they hardly constitute a change of heart. Instead, they constitute a change of tactics. They represent a full-on concerted effort to blame the politicization of capital markets on the jerks who have the gall to insist that politics has no place in capital markets. Maybe if we stop talking about it, Fink has concluded, they’ll stop noticing.
