16 Apr Public Pension Corner Issue #1
News Story #1:
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News Story #2:
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Commentary
by Stephen R. Soukup, President and Publisher
“ESG is Dead. Long Live ESG”
Much ado has been made over the past couple of weeks about Larry Fink’s annual letter. Fink, the CEO of BlackRock, the largest asset management firm in the world, sent his much-anticipated “Letter to Investors” on March 31, and many observers were overwhelmed and overjoyed by what Fink did not say this year:
After years of advocacy, in 2024, Fink began rolling back support of environmental, social, and governance as a priority. In 2025, ESG, sustainability, climate change, and DEI were notably absent as he pushed for more energy production and the expansion of nuclear power….
In the 2024 Chairman’s Letter to Investors, Fink avoided the phrase ESG, opting instead for the terms stakeholder capitalism, sustainable investing, or climate investing. However, none were mentioned in the 2025 letter, indicating a further separation from the issue.
To be clear, this is inarguably good news. Fink is one of the shrewdest operators in the financial services business, and his capitulation on matters like ESG, sustainability, and the energy transition is indicative of a broader trend in capital markets and even the cultural zeitgeist. Energy production is no longer considered irresponsible and, indeed, has become an important part of the movement to restore American business and financial dominance. Public companies and their shareholders seem to have awakened from their daydreams about carbon neutrality, forcing Fink and the rest of the erstwhile sustainability evangelists to acknowledge the new reality.
Of course, the keyword above is almost certainly “public” – as in “public companies.”
While many people paid close attention to what Larry Fink did not say on March 31, too few paid much attention at all to what he actually did say, namely that he fully intends to expand his empire into private markets and that he expects us – you, me, and anyone with a 401K or IRA – to come along for the ride (emphasis added):
BlackRock Inc. Chief Executive Officer Larry Fink pledged to open up private markets to millions of everyday investors, not just the wealthy few, contending individuals should share more of the gains from economic growth….
“Assets that will define the future — data centers, ports, power grids, the world’s fastest-growing private companies — aren’t available to most investors,” Fink said. “They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.”…
The vision for private markets is the next step in Fink’s effort to transform BlackRock into the first firm to manage money at scale across traditional and alternative assets. BlackRock rode a decade-long boom in low-cost index funds and now sees the future in more lucrative private assets.
There are a couple of details worth amplifying here. First and foremost, it’s worth repeating, as Bloomberg notes above, that private asset management is “more lucrative” than low-commission ETFs. As I said, Larry Fink is shrewd. Even if one buys Fink’s case about the benefits to smaller investors of private markets hook, line, and sinker – and I’d be extremely hesitant to do so – one should not be so naïve as to believe that he is being altruistic here. He’s not. He and BlackRock will make more money by putting clients in private markets. Period.
It is also worth noting, along these same lines, that insiders have long insisted that one of Fink’s primary motivations for being an early and aggressive adopter of ESG was the fact that it too was, at least initially, “more lucrative” than traditional ETF management. In 2020, Morningstar reported that ESG funds charged, on average, 50% higher fees than traditional funds, a discrepancy it termed the “greenium.” Not coincidentally, the ESG greenium and Larry Fink’s interest in ESG have decreased in congruence over time.
Larry Fink is really good at sniffing out opportunities to make money – and he’s even better at taking advantage of those opportunities and then moving on when he can make more money elsewhere.
All of that said, it is also worth remembering that Fink, in addition to being very good at making money, is also something of an evangelist on the environment and sustainability. In my book, The Dictatorship of Woke Capital, I refer to him as a “true believer” in the capital markets’ ability to change the world for the better. The fact that public sentiment has turned against ESG and sustainability investing doesn’t necessarily mean Fink has lost his zeal for evangelization.
And that brings us to the second detail worth amplifying about Fink’s 2025 letter to investors and his eagerness to move everyone and everything into private equity. In private equity, the rules are different; specifically, the rules of engagement are more diffuse and complicated and will serve to drown out the voice of the average investor even more effectively than the rules in public markets have done. Also, in private markets, ESG is still…a thing:
ESG-focused investing first took hold in public equity markets, where the buying of listed stocks is scrutinised and regulated more heavily than private market investment. But private market assets under management have soared in recent years, roughly doubling to USD11.7 trillion in the past five years alone (see Figure 1). This has brought the focus on responsible investing across from the public markets. Accordingly, institutional investors like pension plans, sovereign wealth funds and insurers increasingly expect – or indeed require – private market firms to incorporate ESG factors into their investing practices….
Nearly nine in 10 (87.5%) LPs surveyed plan to increase their private market ESG investments over the coming two years, and 86.5% of asset managers say they will expand their ESG private market offering over the same period, PwC found.
There are also other commercial drivers for private market firms, such as that portfolio companies can get potentially cheaper loans if they hit certain ESG targets, most notably around carbon intensity.
I should point out that much of the commentary on the criticality of ESG to private markets and of private markets to ESG comes from companies like PwC, EY, and other Big Four accounting firms, all of which built their entire future on doing ESG audits and the like and are extremely unhappy with the SEC for dropping in emissions reporting rule. Nevertheless, as I said above, the rules are different in private markets, and those differences make it a whole lot more difficult for the public to follow, much less scrutinize, the details of private investment strategies and outcomes.
Of course, Larry Fink knows this well, which is a big part of the reason he’s spent the last couple of years building BlackRock’s private market reach. The other part is that he wants to be the sole master of the entire financial universe.
The bottom line here is that in this new era, in which private markets will play a significant role in personal retirement funds and a much larger role in pension funds than they already do, asset management will be more critical than ever.
