On Climate Action 100+ and the Gods of the Copybook Headings

On Climate Action 100+ and the Gods of the Copybook Headings

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.


Churchill’s Crocodile Takes a Bite

Almost five years ago, the Business Roundtable released its now-(in)famous statement on the redefinition of the purpose of a corporation, marking the public-facing launch of the effort to normalize “stakeholder capitalism.”  Ironically, one might argue that the statement also marked the apex of the stakeholder movement, initiating the exposure of the complexities and contradictions of the effort to “reform” capitalism to align it more closely with 21st-century values.  Oh, sure, the BRT statement preceded the massive surge in ESG investing, but that surge proved to be short-lived, as both ESG and stakeholderism ran headlong into the buzzsaw of economic and fiscal reality.

Slowly but surely, those who wholeheartedly embraced ESG and stakeholderism are learning that reality tends not to be terribly malleable or accommodating – contemporary philosophical contentions to the contrary notwithstanding.  This applies whether that reality is economic, fiscal, or even addressing the nature of man and his fallen existence.

Not long after the BRT’s statement, I penned a long piece reminding readers – and, in theory, business executives – about the historical consistency of the last of these, the immutability of man’s nature.  Specifically, I warned that we, as a civilization, are squandering our didactic heritage, forsaking the lessons about human behavior passed down from antiquity.  Among other things, I suggested that business leaders should be aware that the demands made of them by external actors are not always transparent and can be quite deceptive.  Self-interest is not necessarily enlightened and often is inexhaustible, in which cases, capitulation to external pressure yields only more of the same.  I wrote:

[A] second explanation for the BRT’s new position is… one that we will call “Churchill’s Crocodile,” in reference to the statement that Reader’s Digest adapted from a speech Churchill gave in 1940: “An appeaser is one who feeds a crocodile — hoping it will eat him last.” The idea here is that the CEOs of the Business Roundtable are trying to placate the leftist mob in all its various forms – customers, shareholders, employees, etc. – in the hope that the activists will allow them to run their companies without leftist interference….

Our friend Justin Danhof, the General Counsel for the National Center for Public Policy Research and the Director of the Free Enterprise Project [and now the Director of Corporate Governance at Strive], concurred, suggesting that the Business Roundtable may think it has done something clever but all it has really done is make its member companies more likely targets. “This WILL open them up to a slew of shareholder resolutions,” he wrote.  “BRT is playing right into the activist’s hands.”

It is worth revisiting these thoughts today, in light of the massive news announced last week (and covered in last week’s edition of this newsletter).  The decision made by three large American asset management firms, including two of the “Big Three,” to leave the Climate Action 100+ organization is hugely important, not least because of the explanation for the move given by those firms:

BlackRock Inc. said in a statement that its relationship with CA100+ is changing after the climate group updated its strategy….

After an initial period that focused on improving governance, curbing emissions and strengthening climate-related financial disclosures, CA100+ recently entered a second phase in which signatories are expected to take a more active approach by requesting that companies “move from words to action.”

State Street Global Advisors, which manages $4.1 trillion, said in a statement that it considers the latest requirements from CA100+ to be inconsistent with “our independent approach to proxy voting and portfolio company engagement.” JPMorgan Asset Management, which oversees $3.1 trillion, didn’t mention the new strategy of CA100+, saying it left the group because it has made significant investments in developing its own climate risk engagement framework.

BlackRock said committing to CA100+’s second phase would raise legal considerations, especially in the US.

In short, BlackRock and State Street are changing their commitments to Climate Action 100+ because Climate Action 100+ is changing what it does and what it demands of its members.  Metaphorically, the crocodile has grown more aggressive, and as a result, the appeasers have decided that it is probably in their best interests to stop appeasing and to back slowly away from the prehistoric reptilian killing machine.

While these asset managers are the first to go public with their laments about a change in tactics by the organizations they joined in the name of “sustainability” – and, thus, the change in the underlying agreement between them – this is almost certainly not the end of this story.  Again, this is a largely immutable characteristic of human behavior.  Currently, for example, CalSTRS, the second-largest public pension in the country, is fighting with its fellow sustainability advocates about the same issue that drove State Street, JP Morgan, and BlackRock from Climate Action 100+.  CalSTRS CIO insists that divestment from fossil fuels is a cop-out, that it allows advocates simply to ignore the problems oil, coal, and gas purportedly cause and to walk away.  Active engagement with companies, he insists, is the only real solution to the sustainability issue.

Or at least that’s what he insists today.  Tomorrow, his opinion may change.  And then his strategies may change.  And, eventually, the expectations attendant to various global commitments will change.  Because of course they will.

In the end, then, asset managers like JP Morgan, State Street, and BlackRock ought, on the one hand, to be commended for making the decision to get out now, to abandon the crocodile and his malleable demands before it became too late.

On the other hand, they ought to be chided as well for not understanding the peril in which they put themselves in the first place.  Some things never change, as Kipling famously noted:

As surely as Water will wet us, as surely as Fire will burn,

The Gods of the Copybook Headings with terror and slaughter return!

Stephen Soukup
Stephen Soukup
[email protected]

Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.