LASSMAN: Financial Giants Are Suddenly Realizing The Left’s ESG Movement Has Serious Downsides
Kent Lassman on October 16, 2022
Advocates for aggressive environmental, social and governance (ESG) standards have tried to achieve social and political objectives through anti-democratic and unrepresentative means.
Whether it is Michael Bloomberg and Larry Fink opining on how we ought to rapidly move away from fossil fuel energy, or heads of state and diplomats like John Kerry who love the word “existential,” it is everywhere.
ESG advocates and climate catastrophists alike have learned from Machiavelli, who wrote that there is “nothing more important than appearing to be religious.”
Their fundamental mistake has been to concentrate more and more resources and reputational value on achieving social change through non-democratic and unrepresentative means. That choice has now begun to catch up to them. What these advocates haven’t earned at the ballot box they have been trying to take through other, more coercive, means. More specifically, the decision to weaponize the financial industry to direct investment flows toward favored green and renewable projects has begun to backfire.
They have argued that we must decarbonize the economy. Their objective is nothing short of a radical reformation of the global economy reliant on zero-emission energy sources.
Take, for example, a 2020 letter from BlackRock CEO Larry Fink. Two years ago, he announced that ESG, and specifically climate change, would be a “defining factor” in how BlackRock would assess the companies in which they invested.
Genuflecting at the altar of radical environmentalism, investments within BlackRock’s nearly $10 trillion portfolio would have to satisfy two criteria — progress toward a low-carbon economy and their core fiduciary obligations to their investors.
Last year the Glasgow Financial Alliance for Net Zero (GFANZ) announced with great fanfare at the U.N. climate meetings that members would “work to accelerate the world’s transition to net-zero greenhouse gas emissions by 2050.” Like Fink and BlackRock, members of the GFANZ appear religious.
The organization is populated by big financial institutions happy to take credit for aligning a crucial link in the economy — banking and finance — to pursue social goals that are necessarily political in nature.
But there are costs for all of this fervor and for mixing political objectives with commercial goals. Most recently, the smooth sailing of GFANZ hit turbulence. Bloomberg News reported this week that “banks may not have originally understood the full litigation risks tied to signing net-zero commitments.
DLA Piper is among the law firms saying any company making a net-zero claim without scientific underpinnings may be viewed as having misled consumers.”
In case there is any misunderstanding, in the banking and finance world terms like “full litigation risks” and “misled consumers” ring out like a five-alarm fire. BlackRock and others are living with the consequences of political advocacy. What started as a trickle has emerged as a wave of state governments recoiling from the perceived focus on anything other than returns.
A few days ago, Louisiana Treasurer John Schroder informed BlackRock that he is divesting all state funds from their management due to its embrace of ESG at the expense of their fiduciary obligations and the effects on the Louisiana energy economy.
This is only the latest move by a state or state official to draw attention of Wall Street ESG advocates and BlackRock. In the past few weeks, Louisiana, South Carolina, Utah, and Arkansas have made announcements that combined will pull more than $1 billion from BlackRock management.
Previously, the Texas comptroller directed for state pension funds to boycott BlackRock and other fund companies that shun investments in the energy sector. In August, 19 attorneys general warned the fund giant that it may be violating its fiduciary duty and committing antitrust violations.
Fink has taken fire from progressives too. New York City Comptroller Brad Lander threatened to withdraw city pension funds from BlackRock management because of the firm’s departures from its climate commitments, saying that the firm’s approach “is at odds with its stated commitment to net-zero emissions.”
Last year ultra-progressive philanthropist George Soros criticized the firm for its deep ties with the Chinese government, in light of the social responsibility elements of ESG indexes.
Suddenly, business leaders like Fink not only want to appear religious but are suggesting that they’ve suddenly had a religious conversion. His 2022 letter to investors appeared to step back from stakeholder activism, declaring that BlackRock was not divesting from energy.
During a September Congressional hearing, JP Morgan Chase CEO Jamie Dimon was asked by Rep. Rashida Tlaib (Mich.-D) to pledge not to fund any more oil and gas projects.
His response, “Absolutely not and that would be the road to hell for America.”
JP Morgan Chase, along with Bank of America and Morgan Stanley, have suggested to the Financial Times that they are considering or preparing to leave GFANZ.
For its part, BlackRock launched a new webpage last week with a bold header, “Energy investing: Setting the record straight” where they make their case to the public and public officials alike.
The firm wants us to believe that it is serious about big investments for traditional energy projects. The site explains the firm’s belief that “a longer-term shift towards a less carbon-intensive economy is likely to continue.”
BlackRock deserves credit for its leadership on democratizing and improving transparency for proxy voting for pensions funds which is a particularly sore spot for the attorneys general and state treasurers. But their latest efforts ring hollow after a decade of cheerleading for ever more restrictive energy policies from Fink.
Ultimately, politicizing non-political decisions like investments and the overall structure of the energy economy is a dangerous game. There is clearly strong political pushback when approximately half of the country doesn’t agree with your political goals.
There is also significant legal jeopardy — especially in the heavily regulated financial marketplace, where it can mean federal prison to say one thing and then claim you are doing another. Indeed, the entire financial regulatory superstructure built since the New Deal is premised on checks against fraud and promoting genuine transparency.
It’s not clear what the latest iteration of BlackRock’s ESG religion is. Are they penitent or simply playing politics?
Kent Lassman is President and CEO of the Competitive Enterprise Institute in Washington, D.C.
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