25 Apr Waddle, Waddle, Quack, Quack
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.
A Duck Named BlackRock
The energy transition is going to be expensive, very expensive, twice as expensive as anyone thought just a few short months ago. And you don’t have to take my word for it. The nice folks at the world’s largest asset management firm have run the numbers and have come to this same conclusion: saving the world from cheap and abundant energy is gonna cost us:
BlackRock estimates that the world’s green energy transition will require $4 trillion annually by the mid-2030s, calling for more public-private partnerships, especially in Asia-Pacific.
The forecast comes from BlackRock’s latest “Investment Institute Transition Scenario,” which analyzes how the low-carbon transition is most likely to play out and its potential impact on portfolios.
The $4 trillion figure is double previous expectations of $2 trillion annually, and will require increases in both public and private sector capital….
Any way you look at it, that’s a lot of money. One supposes as well that that’s not the true number, that just as the number doubled from the previous assessment, so will it double in the next assessment, and the one after that. These things are notoriously hard to predict and will, undoubtedly, require considerably greater investment than even BlackRock presumes right now.
Naturally, this raises some questions, the most important of which are: where is the money going to come from and who in the world is going to be able to handle such a massive “investment?”
According to BlackRock, the answer to the first question is from both public and private sources, in combination and even collusion with one another. Specifically, funding the energy transition will require “alignment between government action, companies and partnerships with communities.” I’m not sure what exactly BlackRock means by this, but it makes me a little leery. After all “alignment between government action” and “companies” is a phenomenon that goes by a great many names, most of which have serious negative connotations. Whatever you call it – and “corporatism” is the usual name for such things – it appears not to leave much room for public input through consumer and investor choice and seems, instead, to direct capital to pre-ordained, centrally planned, policy-driven (as opposed to market-driven) ends.
As the electrical vehicle bust shows, that’s not always a great idea. Indeed, rarely is it a great idea.
As for the answer to the second question, that may be even worse – or better, I suppose, given one’s perspective.
According to new data just released by Morningstar, there is one company that is, by far, better positioned than all the rest to handle greater investment in the energy transition. Wanna guess who?
BlackRock Inc. has emerged as the clear leader in a fast-growing corner of ESG: climate transition.
Transition strategies entail investing in companies that are seen as instrumental in shifting toward a low-carbon economy. Last year, the market for transition funds grew 25% to almost $210 billion, according to data provided by Morningstar Inc. And no asset manager drew as much investor cash to transition funds as BlackRock, the data show.
“BlackRock is the incontestable leader,” said Hortense Bioy, global director of sustainability research at Morningstar. “It dominates the ESG fund landscape globally, in large part due to its passive fund range. And the climate investing space is no exception.”…
Across Europe’s ESG asset-management industry, which is the world’s biggest, the five best-selling climate funds last year were transition strategies, four of which are BlackRock products. In all, the BlackRock funds drew in $13.9 billion in net flows, according to Morningstar’s data.
Not long ago, BlackRock CEO Larry Fink spoke on his company’s quarterly earnings call and angrily assailed those who continually “lie” about his firm and about ESG and about the connection between the two. While Fink’s anger is understandable, it is not, in any way, justified.
What, you ask, is the difference?
Well, it’s perfectly understandable that Fink would be tired of having to explain away inconveniences like this one, in which his firm insists that the energy transition will require more massive investment than previously thought, even as it is clearly and inarguably positioned to take best advantage of increased investment in the energy transition. It’s perfectly understandable that he would be angry that people keep pointing out the fact that everything he does is geared toward expanding his wealth and his investment fiefdom, even though he couches it all in noble-sounding, selfless terms.
If Fink’s anger were justified, by contrast, then it would be because those charges are untrue. But they’re not.
I have long argued that it is somewhat unfair to call ESG a “scam.” There are a great many people in the investment business who earnestly believe that they can do well by doing good. They are well-intentioned, if hopelessly naïve.
Then, of course, there are also people like Fink, who feigns anger when he is called out for his chicanery, even as he makes no real effort to hide that chicanery in the first place. And based on the fact that BlackRock remains both the largest asset manager in the world and the most prolific provider of ESG services – despite all the effort put forth by ESG opponents – one can’t help but conclude that ESG and BlackRock are, in many ways synonymous. And BlackRock, clearly, walks like a duck and quacks like a duck.
And being a duck is nice work if you can get it, I suppose.
