|
 Fink’s shift is more than rhetorical. Just three years ago, in
his 2019 “Profit and Purpose” letter, Fink told CEOs that the $24 trillion of
wealth Millennials expect to inherit from their Boomer parents meant that ESG
(environment, social, governance) issues “will be increasingly material to
corporate valuations.” Now Fink tells them that “long-term profitability” is the
measure by which markets will determine their companies’ success, dumping the
ESG valuation metrics he’d previously championed.
Why, then, launch a Center for Stakeholder Capitalism, as
BlackRock intends, and not simply a Center for Capitalism? “Your company’s
purpose is its north star,” Fink says, echoing the Big Idea of his “Profit &
Purpose” letter. BlackRock is the largest shareholder in Unilever. London-based
Terry Smith, a top 15 Unilever shareholder, slammed Unilever’s top management
for being obsessed with public displays of sustainability credentials at the
expense of focusing on business fundamentals. In his letter to Fundsmith
shareholders, Smith wrote, “a company which feels it has to define the purpose
of Hellmann’s mayonnaise has in our view clearly lost the plot.” Ouch.
The days of woke CEOs criticizing democratically elected politicians for, say,
not mandating unisex bathrooms, also seem to be drawing to a close. CEOs should
be thoughtful in how they address social issues, Fink says, advising them to
show humility and stay grounded. But Fink himself has some way to travel along
the humility road. He requires all companies BlackRock invests in to set short-,
medium-, and long-term targets for greenhouse gas reductions – as if BlackRock
is an enforcement arm of government and net zero is a done deal. “Incumbents
need to be clear about their pathway [to] succeeding in a net zero economy,” he
writes.
Successful investing – the deployment of capital based on expectations of future
returns – is grounded in realism, not make-believe. The failure of last year’s
UN climate summit in Glasgow – the summit does not rate a single mention in
Fink’s 3,000-word letter – makes it plain to any objective observer that the
world will not reach net zero anywhere close to the prescribed date. Forcing
companies to conform to a scenario that has virtually no chance of materializing
destroys more than shareholder value: it makes all stakeholders worse off. In
this respect, ESG investing is antisocial because it is detrimental to society.
ESG investing won’t help the environment, either. Cutting off
capital to publicly traded oil and gas companies will not reduce global
greenhouse gas emissions. Fink knows this. “Any plan that focuses solely on
limiting supply and fails to address demand for hydrocarbons will drive up
energy prices,” he admits. Congress has not passed legislation to cap demand and
is extremely unlikely to do so – a reality he is unwilling to accept.
Three months ago, former Treasury Secretary Larry Summers made a stunning
intervention when he criticized central bankers for defining themselves by their
wokeness, by their social and environmental concerns. “We’re in more danger than
we’ve been during my career of losing control of inflation,” Summers said.
[to top of second column] |
High inflation is now the biggest threat to the
economy. Woke central bankers and multitrillion-dollar institutional
investors are peas in a pod when it comes to their culpability for
rising prices. “We need to be honest about the fact that green
products often come at a higher cost,” Fink admits. ESG pushes up
the cost of energy, and central bankers’ ultra-loose monetary
policies accommodate it.
BlackRock’s embrace of woke investing puts it in an awkward and
untenable position, as Fink’s partial retreat demonstrates. In
November, Riley Moore, the state treasurer of West Virginia, and 15
other state treasurers wrote an open letter threatening collective
action against financial institutions that boycott traditional
energy industries in their states. Last week, Moore announced that
West Virginia would not use BlackRock as part of its banking
operations.
BlackRock is also feeling the heat in Texas. On
January 3 of this year (though it misdated the letter 2021),
BlackRock wrote to Texas state legislators to say that it supports
hydrocarbon producers because of their crucial role in supporting a
successful energy transition – one that would put those companies
out of business.
The letter did not explain BlackRock’s vote to put anti-hydrocarbon
directors proposed by Engine No. 1 – a tiny activist fund claiming
to use ESG to drive economic value – on the board of Texas-based
Exxon Mobil. Commenting on Exxon Mobil’s recent emissions pledges,
Charlie Penner, who led the Engine No. 1 campaign, remarked that the
company should not pursue projects that “only make economic sense if
the world fails to meet its climate targets.” The world is on track
to miss these targets by a country mile. Engine’s activism is not
about investing; it is politics by other means.
Wall Street billionaires make for improbable green revolutionaries.
Credit Suisse fired chairman António Horta-Osório for breaking Covid
quarantine rules. His transgressions, Brooke Masters commented,
highlighted the common attitude among the world’s elite that rules
are for other people. “Hundreds of supposedly green business
executives and celebrities never seem to understand the hypocrisy of
taking their fuel-guzzling yachts and private jets to climate change
conferences,” she wrote. At some level, Fink seems to recognize the
difficulty. Ensuring access to reliable, affordable energy is
necessary, he says, “to avoid societal discord.” That means more
investment in oil and gas.
Thus, Larry Fink finds himself warning of the very
danger that BlackRock’s woke investment policies will bring about.
High inflation and squeezed living standards make it a safe bet that
come this time next year, he will be running even faster in the
opposite direction.
Rupert Darwall is a senior fellow at RealClearFoundation,
researching issues from international climate agreements to the
integration of environmental, social, and governance (ESG) goals in
corporate governance. He has also written extensively for
publications on both sides of the Atlantic, including The Spectator,
Wall Street Journal, National Review, and Daily Telegraph.
|
