11 Apr Larry Fink, James Taranto, and Pauline Kael
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.
ESG’s Very Special World
As you know, three weeks ago, the Texas Permanent School Fund pulled $8.5 billion from management at BlackRock, citing the firm’s ESG/sustainability activism and its consequent violation of Texas state law. As you likely also know, almost immediately, BlackRock went into pushback mode, fighting back against the Texas State Board of Education, its chairman Aaron Kinsey, and the very idea that it is somehow “anti-fossil-fuel.” The biggest asset management firm in the world wrote a terse letter to Kinsey and posted it, along with a thread defending itself, on Twitter/X. CEO Larry Fink did a PR tour of the major business networks the following week, while also touting his newly released annual letter to investors, which notably and purposefully avoided any mention of ESG, stakeholderism, sustainability, or any of the other buzzwords from the past few years. Fink and BlackRock insisted, over and over, that they were blindsided by this move, that they never expected that they, of all firms, would be accused of such wickedness. After all, had they not made the permanent School Find a nice chunk of money? How in the world could self-proclaimed conservatives and freedom-lovers be so callously and aggressively anti-market, they wondered aloud.
Despite coming from the Great and Powerful BlackRock®, this response has been neither particularly great nor especially powerful. Indeed, it’s actually been pretty feeble. BlackRock presumably has a large, well-staffed, high-powered PR team. It has its own think-tank, after all. And if it doesn’t, it certainly has the resources to hire the best PR firms in the country. Moreover, it has blanket access to all the financial media – print, TV, radio, internet. It’s run by smart people, who have hired smart people, who have hired other smart people, all of whom have known for years that this sort of response to their investment agenda was coming.
Yet even so, critics and other posters picked apart the G&P BlackRock® in its response thread to Aaron Kinsey. Will Hild, the Executive Director of Consumers Research, obliterated BlackRock’s claim that it had no warning that it could lose management of the School Fund money in his own thread on Twitter/X. A broad coalition of market players and watchdogs, led by the State Financial Officers Foundation, banded together to issue a public statement supporting Kinsey and his actions, and all BlackRock could do in response was complain all the louder about how unfair the whole thing is. All things considered, Larry Fink and Co. flubbed this one.
What’s interesting about this episode is that it is, in many ways, reflective of the ESG industrial complex’s entire response to the pushback against their political meddling. It’s not just that BlackRock flubbed this one. It’s that they’ve flubbed every one for the last three years at least. And so have the rest of the ESG players. When confronted with the case that they are politicizing capital markets and, by extension, threatening both the goose of American capitalism and the golden eggs she lays, the ESG players inevitably default to what amounts to schoolyard bullying: “Nuh-uh! You are!”
Part of this, of course, is the nature of the argument. Those who oppose ESG and want corporations to focus on their primary responsibilities (producing and delivering services, pleasing customers, creating wealth for employees and shareholders, etc.) simply have the better case. It is not easy to flip an argument on one’s accuser, in part because doing so requires you to start from the position: “Nuh-uh! You are!”
The bigger part of the problem for ESG’s most vociferous advocates, however, is the fact that they never expected any serious opposition to their cause and its goals, and even today, several years after the pushback began in earnest, still don’t take it seriously. The bigger part of the problem, as noted above, is that they have “blanket access to all the financial media – print, TV, radio, internet.”
More than a decade ago, James Taranto, the editor in charge of the editorial page at The Wall Street Journal, and R. Emmett Tyrrell, the founder and editor-in-chief of The American Spectator, combined forces to formulate what became known as “the Taranto Principle.” It postulates that the mainstream media’s leftward tilt creates innumerable problems for left-of-center politicians, who don’t quite seem to understand that the “average American” doesn’t share the background and prejudices of the “average” New York Times columnist. Tyrrell put it this way:
Someday the Taranto Principle will be taught in all the journalism schools, assuming one or two survive the present detumescence of journalism. Formulated by the inimitable Wall Street Journal editorialist James Taranto, the principle posits that when the liberal mainstream press indulges a liberal politician’s deceits or fails to hold the politician accountable for his misbehavior, it encourages the politician to ascend to a higher level of misbehavior.
Larry Fink never expected the pushback against ESG because no one told him that there would be a pushback against ESG. He went on CNBC and talked to his friends at Bloomberg and yucked it up with the guys at “Dealbook,” and they all told him what he was doing was great. At the very least, no one told him it wasn’t great. The same goes for Ronald O’Hanley and Brian Moynihan and Jamie Dimon and even Andrew Behar. After all, they thought, who could possibly oppose what we’re proposing, using the power of capital markets to make the world a better place – or at least saying so, as we charge jacked-up commissions? Certainly, no one we know thinks this is bad. And even if they do, they’re like that Tariq Fancy guy, who thinks that the problem with what we’re doing is that it doesn’t do enough.
The Taranto Principle, in turn, is a derivative of the Pauline Kael Principle. Kael, you may recall, was the renowned film critic who, in December 1972, famously admitted that she didn’t have any idea how Richard Nixon had just won a massive landslide reelection victory. “I live in a rather special world,” she said. “I only know one person who voted for Nixon. Where they [Nixon’s other supporters] are I don’t know. They’re outside my ken.”
The people who most aggressively push ESG and deny its faults also live in a very special world. They don’t know anyone who thinks that “sustainability” is a politically charged term. They don’t believe that anyone who matters could possibly find fault with the sustainability agenda. Moreover, they think that people who think otherwise are not especially bright to begin with and can be fooled and flummoxed by big words and fancy language.
In his letter to investors two weeks ago, Larry Fink praised Germany’s sustainability efforts and called it one of two “great illustrations of what the energy transition looks like.” Either Fink doesn’t know that Germany is in the throes of deindustrialization, cascading energy crises, and a potentially quite deep recession – all because of “the energy transition” – or he thinks that his readers and critics don’t know it. Now, I’m not a betting man, but I’d wager big on the latter. Fink has grown accustomed to saying whatever he pleases, regardless of impact or accuracy because no one has told him that can’t say whatever he pleases or, at the very least, that he shouldn’t. People who think that Germany’s economic and energy policies are suicidal and serve as a negative illustration of what the energy transition looks like are simply outside his ken. Why should he bother with them?
The most fascinating aspect of all of this is that the shambolic, incompetent responses to the pushback against ESG are likely the best the Great and Powerful BlackRock® and its allies can do for now. To make a better argument, they would first have to acknowledge that there just might be a legitimate reason to think that ESG creates a problematic model of shareholder stewardship. And if they do that, then the whole game is lost. So, they won’t.
Instead, they’ll look for other ways to push their agenda, most likely surreptitiously and using the leverage they have (i.e. gobs and gobs of money) to “influence” those whom they could not win over with effective arguments. That’s much easier and considerably less messy.
