29 Mar Putting the “Woke” in “Woke Capital”
Rupert Darwall, one of our favorite ESG critics (and someone whose work we have praised before), had an article published yesterday at RealClearEnergy in which he marveled at how much difference a year can make, even among ESG’s true believers. As some of you may have noticed, BlackRock’s Larry Fink didn’t send his annual letter to CEOs this year, choosing only to send one to investors. More to the point, this year’s letter has a decidedly different feel about it. Darwall writes:
Whereas Fink’s 2021 letter to CEOs mentioned net zero 22 times and his 2022 letter, nine times, net zero was referred to only once this year—and then, only in passing (“European governments are also developing incentives to support the transition to a net zero economy and drive growth.”) Similarly, mentions of ESG have fallen from ten in 2021, to one last year, to none this year. How times have changed.
Two years ago, BlackRock made a blunt demand of the companies that it invests in: “We are asking”—that’s an instruction; you can hardly say no to the world’s largest investor—“companies to disclose a plan for how their business model will be compatible with a net zero economy.” This hasn’t been entirely walked back. BlackRock, Fink says, has been vocal in the past about companies disclosing how they plan to navigate the energy transition, but the tone now is softer and less vocal. It is not the role of an asset manager like BlackRock to engineer a particular outcome in the economy, Fink writes, and it’s not its place to tell companies what to do. Forswearing the clairvoyance that Keeley criticizes, Fink says that BlackRock doesn’t “know the ultimate path and timing of the transition,” a position that is not as crystalline as Buckley’s but is hard to reconcile with BlackRock’s continued membership of NZAM. Had this been BlackRock’s position two years ago, it would have been noisily condemned by climate activists and BlackRock would have been accused of sabotaging the Glasgow climate conference. So far, there has scarcely been a murmur. The world is quietly moving on from net zero.
You should, of course, read the whole thing. As always, Darwall provides sharp and thought-provoking analysis.
That said, we’re probably not as sanguine as Darwall is about Fink’s change of heart. Indeed, we’re not yet convinced about Vanguard CEO Tim Buckley’s change of heart, despite the fact that (as Darwall notes) Buckley recently pulled his firm out of the Net Zero Asset Managers (NZAM) initiative and conceded that “It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests in.” We want to see action, frankly, meaning that we want to see changes in engagement and proxy voting patterns before we pat anyone on the back for turning away from the dark side.
To be honest, while we have hope for Buckley and Vanguard, we doubt seriously that Fink and BlackRock are doing anything here other than reading the room and biding their time. Our hope for Vanguard is based in large part on its significant retail business. Unsurprisingly, support for ESG tends to break down over investor type. Institutions tend to be more into it, while retail investors tend not to be. Vanguard’s investors are predominantly retail, while BlackRock’s are almost entirely institutional.
Additionally, if Fink and BlackRock are, in fact, playing “hide the ESG” rather than adjusting their goals to fit the times, they would hardly be alone (emphasis added):
Banks and financial firms are quietly recalibrating how they talk about ESG investing in the US, navigating around potential political fights in order to avoid losing lucrative business.
Eleven major banks and money managers told Bloomberg News that they’re adjusting the language they use in pitch books, marketing materials and investor reports when seeking to sell funds and take part in financial deals. In some cases this means avoiding using the ESG acronym and related terms in Republican-led states, while for blue states, they’re playing up their ESG credentials, according to representatives of the financial firms who asked not to be named discussing private information.
The different language doesn’t reflect a change in underlying services, just an acknowledgment that words need to be adjusted depending on who the client is, the people said. In general, they spoke of a desire to tweak language to refer to the long-term cost of things like flood risk, land erosion and extreme weather, rather than using potentially divisive terms like climate change….
Arthur Krebbers, who runs ESG capital markets for corporates at Edinburgh-based NatWest Group Plc, said fund managers he speaks to are becoming “coy” about referring to their climate goals to US clients. There are “regional nuances” in the choice of words, “particularly in the US,” he said.
Of course. Why would anyone expect anything different? “We know the rubes don’t like ESG, so we do them a favor….We lie to them about it.”
The other day, Dominic Pino wrote at National Review Online about the dangers of being too quick to “cry woke” in the debate of ESG and stakeholder capitalism:
As Andrew Stuttaford has argued more times than possibly anyone else, the fundamental problem with ESG is not wokeness. It’s that ESG undermines the property rights of investment owners. It’s that ESG’s relative, stakeholder capitalism, undermines mechanisms of democratic accountability and moves the U.S. closer to corporatism. It’s that “sustainability” has spawned an industry of rent-seekers that suck value out of Americans’ hard work.
Pino is right – and, by extension, so is Stuttaford. As we noted in our response, this is inarguably true, the title of my book notwithstanding. “Woke” and “woke capital” are two different things, with the clear and present danger coming from the anti-democratic, anti-shareholder, proto-corporatist “woke capital.”
Nevertheless, there is also a reason that the book delves into the history and philosophy undergirding woke capital, namely because it does matter, as the above game of hide the ESG indicates. In this case – and in Fink’s case, we suspect – the falsehoods about the use of ESG are justified by the need to do something serious and substantive about the climate “crisis.” And you don’t have to take our word for that:
Anti-ESG rhetoric in the US is “absolute madness,” said Ioannis Ioannou, associate professor of strategy and entrepreneurship at London Business School. The “appeasement approach” that the finance industry seems to be resorting to “may be unsettling in principle,” but it’s arguably a case of the “long-term benefits” outweighing the “short-term compromises,” he said.
In brief: the threat from “woke capital” isn’t necessarily the “woke” so much as it is the assault on property rights, liberty, and democratic governance. At the same time, you can’t get to the point where all of those attacks are rationalized without the prior and sustained assault on the ethical norms that enable capital markets to function in the first place. “Here” is the problem, but you can’t get from there to here without the breakdown in morality that also enables woke.
Professor Ioannou, the perfect little Benthamite, is clear and unapologetic about it. The ends justify the means, and it’s perfectly acceptable to lie, cheat, and steal, if it necessary to reach the proper “moral” goal.
We’d guess that Larry Fink probably feels the same way. He and the good professor are the guys who put the “woke” in “woke capital.”