Date: 6/26/2023
Author: Mr. X
One of the most important things to remember about journalism today is that the headline is supposed to get you to read, not to tell you what’s going on.
Take these headlines about CEO Larry Fink of BlackRock, the largest asset manager in the world.
- BlackRock’s Larry Fink says he’s ditching the term ESG amid political fight: ‘I’m ashamed’, The Washington Times
- BlackRock’s Larry Fink says he is done using term ‘ESG’ amid growing backlash, Washington Examiner
- Larry Fink “ashamed” to be part of ESG political debate, Axios
So is one of the world’s most powerful men, the guy who basically mainstreamed the Environmental, Social, Governance (ESG) phenomenon through sheer market power, backing down out of fear? Not quite. Even the quote itself is a bit muddled.
Later in the same talk, given at the Aspen Ideas Festival in Colorado, Fink seemed to back away from the word “ashamed.” “I never said I was ashamed,” he said. (Community Note: He did, in fact, say he was ashamed, like three seconds before this). “I’m not ashamed. I do believe in conscientious capitalism.”
That makes it sound more like a brand change than a significant change in policy. And that’s probably what’s happening. Larry Fink is not changing course, nor is ESG going to go away. However, they are going to call it somewhat different.
What Larry Fink is really mad about is pushing back. “I’m not going to use the word ESG because it’s been misused by the far left and the far right,” he said. Specifically, he admitted BlackRock took a blow when Florida Governor and Republican presidential candidate Ron DeSantis divested about $2 billion in state assets from his company over the ESG issue. Attacking ESG is now a standard part of many Republicans’ campaign speeches.
It’s easy to see why. ESG provides a way of analyzing companies and economic sectors based on “sustainability,” climate impact, employee pay, corporate transparency, diversity policy, etc. Companies earn an ESG score and that score is used to judge whether certain targets are being met. This new metric goes through the entire economy, exempting almost no companies. It gives tremendous power to media, investment banks, and other groups that would profit from increased attention to these standards, especially Non-Governmental Organizations (NGOs).
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In 2020, Larry Fink was preaching the gospel of ESG like a true zealot. He claimed that companies with better ESG profiles performed better than their peers, enjoying a “sustainability premium.” BlackRock (again, already the world’s largest asset manager) would double its ESG assets within five years. In February 2021, he said ESG was a necessity, “no longer optional.” If you are suspicious of his goals, this is ominous considering that in 2017 he spoke about the way Blackrock would “force behaviors” to achieve certain goals focused on ethnicity and race.
What Fink really wants is a return to the years when ESG was just treated as “apolitical.” And though there was a throwaway reference to the “far left,” it is what he would consider the “far right” that he is worried about, Ron DeSantis in particular. Still, Fink doesn’t need to be too worried. Republicans in general will never be able to rally against big business, even if it would make political sense for them to do so.
For example, former vice president Mike Pence recently slammed Ron DeSantis and his actions against Disney. “When the governor of Florida decided to launch a full-scale campaign of governmental retribution against Disney, he wasn’t taking a page out of the conservative playbook – he was following in the footsteps of the radical left,” Pence said. “In doing so, he not only risked billions of dollars of investment and thousands of jobs for the state, but even more importantly, he turned his back on the principles that make our country great.” DeSantis shot back that “the days of Republicans just deferring to large corporations, I think, need to be over.”
Despite Fink’s assurances that the backlash against ESG wasn’t really hurting the company, he wouldn’t have made these comments if there wasn’t something important at stake. Investment banks have been massively empowered by ESG. Progressive movements (like Occupy Wall Street) have been defanged by ESG or “conscientious capitalism” or whatever they want to call it. After all, NGOs are more likely to seek a grant from elite institutions than kill the goose that lays the golden egg. At the same time, it does make investment bankers restricted in what they can say or support. Previously, investment banks only had to worry about policies that might hurt the bottom line. Now, individual executives need to worry about being caught up in the same social media machine that they have empowered in so many ways. One misguided or unguarded comment can cost a CEO his job.
Obviously, Fink’s comment isn’t anything close to that. Still, it’s revealing. One wonders if he isn’t having second thoughts about wading into this fight. He’s a great businessman and as he’s pointed out, BlackRock is making record profits. Yet the skills required of a great politician are very different from those needed for a corporate leader. He can’t have it both ways, expecting to wield power in the social field while escaping accountability. The GOP is unlikely to ever take large-scale action to reign in corporate America. But even the most powerful companies and corporate executives are now in the uncomfortable position of being permanent public figures – with everyone just one bad media cycle away from ruin.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
