05 Dec Of Mercenaries and Transition-Finance Frameworks
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.
NOTE: My apologies for my tardiness today. I had a four-plus-hour appointment this morning for my perpetually pathetic peepers (i.e. my stupid eyes). I didn’t expect it to last that long and nor did I expect to be this late.
Dimon Gets Rough
In the introduction to my book, The Dictatorship of Woke Capital, I contrast the approaches to ESG taken by two of the world’s best-known financial players, BlackRock’s Larry Fink and JPMorgan’s Jamie Dimon. I label Fink a “true believer,” someone who wants to use the financial markets to make the world a better place. Conversely, I compare Dimon to the pre-conversion St. Augustine of Hippo, someone who wishes to be made holy (like Fink), but not yet. Or to put it more bluntly, Dimon was a proponent of ESG who was in the game not because he believed in it (or much of anything else, for that matter) but because he thought it could make him (and his bank and his friends) “gobs and gobs of money.”
Although I altered my depiction of Fink in the preface to the paperback edition of the book, having come to the conclusion that he was far more cynical and manipulative than I had first thought, I stand firm on what I said about Dimon. Despite having been the chairman of the Business Roundtable when it bumptiously redefined “the purpose of a corporation,” Dimon didn’t – and doesn’t – really care all that much about stakeholders or ESG or sustainability or the much-ballyhooed energy transition or any of that stuff. Dimon continues to care primarily about making gobs and gobs of money – for Jamie Dimon, first and foremost, but for everyone around him as well.
Now, if you happen to be a shareholder of JP Morgan, then that’s good for you, or at least it looks good for you, superficially. As the late, great Milton Friedman famously noted, a corporate executive’s responsibility is to “conduct the business “in accordance with [your] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.” And that certainly appears to be what Dimon is doing.
Unfortunately, things are not at all as straightforward as they might appear at first blush.
There is no question that Dimon is good at making money. At the same time, his bank, his customers, his shareholders, and the markets generally should be at least a little bit worried about whiplash. Consider:
Over the past weekend, Bloomberg reported that JP Morgan is “bucking the trend” in American banking and finance and eschewing the otherwise pervasive energy “transition-financing framework,” choosing instead to let projects sink or swim on their financial merits. To wit:
Linda French, JPMorgan’s global head of sustainability policy and regulation, says it’s far from clear that calling something a transition asset will unlock capital. Ultimately, she says, the approach ignores the fact that investors are less concerned with definitions and more interested in proof that capital allocations yield results.
“To state what should be obvious, finance will only move when there’s an economically viable business case,” French said in an interview. “Taxonomies and disclosure frameworks on their own do nothing to finance flows, and even risk becoming a distraction.”…
“Fundamentally, it’s a rehash of the green finance conversation: Once you’ve defined relevant economic activities, then finance will begin to flow to those activities,” she said. As an approach, it downplays the fundamentals of financial logic, she said.
This is not a big deal. It is a HUGE deal. It is an acknowledgment – from the world’s biggest bank (by customer deposits) – that the principles that animated ESG, sustainable investing, and the whole “green finance” mishmash over the last decade were directly at odds with the fiduciary duties of nearly everyone who participated. It wasn’t about “doing well by doing good” as we were all told. Rather, it was about trying to fit a square peg into a round hole, trying to make “sustainable” investments appear to have a comparable ROI to regular, unlabeled investment products and strategies.
Bloomberg’s Alastair Marsh continues, noting that “Pure green investments such as solar and wind have largely proved a losing bet in recent years, with the S&P Global Clean Energy Index down almost 40% since the beginning of 2023. In the same period, the S&P 500 Index has gained more than 50%.” JPMorgan has had enough, apparently. It is making it clear that “if the economics don’t work for companies to invest in transition, then what are we even talking about?”
On the plus side, this will be good for the bank, its profitability, and its shareholders. More generally speaking, because this is Jamie Dimon’s bank we’re talking about, this is a signal to the rest of the markets: “transition-finance” is yesterday’s play. As I said, Dimon is good at making money, really good. And if he is bucking a trend, then you’d probably want to start bucking it yourself or at least give bucking some serious thought.
At the same time, the downside here is potentially important as well. Remember, Dimon wasn’t an innocent bystander in the rise of ESG/sustainability. He was a major player. To the best of my knowledge, he’s never rescinded his signature on the BRT’s declaration of the purpose of a corporation. He’s never apologized for getting his bank, his shareholders, and the entire business into the ESG matrix. He’s just moving on to the next thing.
In a sense, Dimon is proving to be less like the sinful Augustine and more like Sir John Hawkwood, the 14th-century English soldier, commander of the Italian “White Company,” and perhaps the most famous mercenary in Western history. Dimon isn’t exactly running his bank to make money in line with any principles – including fiduciary principles. He’s running it to make money by jumping from battlefield to battlefield. That’s a high-risk, high-reward game. It’s mostly paid off, so far, but that’s not to say that it always will.
If Dimon and JPMorgan were permanently to embrace the ideals articulated by Linda French in the Bloomberg story, that would be fantastic – for everyone. But you’ll forgive me for being skeptical. Dimon has shown an affinity for shiny baubles, which can make a ton of money in the short term, but which can unbalance markets, create volatility, and lead to widespread losses. ESG is a perfect example of such a bauble.
John Hawkwood died at his home in Florence at the age of 71. Most mercenaries aren’t as lucky. They die on the battlefield, trying to squeak out one more buck for one more battle. Whether Dimon will die on the battlefield or manage to follow Hawkwood into retirement and the history books remains to be seen. Watch him closely. Appreciate his acumen for finding trends but maintain your skepticism of his mercenary impulses.
