ESG at the political edge
Corporate hijacking of the agenda opens the way for greenwashing
It can’t be easy being Larry Fink these days. The billionaire is CEO of the world’s largest asset management company, BlackRock, and is under attack from all sorts of people.
Some degree of animosity is inevitable when you’re in charge of directing almost $10trillion of investments across the globe. With that sort of power and wealth you’re bound to irritate someone.
Amazingly, though, just three years ago Fink seemed adored by all. In his 2020 letter to shareholders, in a bid to drive home the attractions of avoiding carbon, he gushed about sustainable investments being the “investment opportunity” of his lifetime. Previously he had criticised corporate managers for returning too much to investors in the form of dividends and share buybacks. At one stage he’d even urged executives to consider the idea of “stakeholders” rather than just “shareholders”. In similar vein he encouraged companies to move beyond short- and medium-term perspectives and focus more on the long term.
What wasn’t there to love? Here was a corporate titan who not only saw the big picture, he saw the long one.
The 2020 World Economic Forum (WEF) meeting in Davos enthusiastically endorsed Fink’s view of a “fundamental reshaping of finance” when it updated its Davos manifesto for the first time since 1973.
In future, said the WEF, businesses must be stewards of the environment, uphold human rights throughout their global supply chains and pursue sustainable shareholder returns that don’t sacrifice the future for the present. This was pretty much an echo of the Business Roundtable’s earlier revision of its statement on the purpose of a corporation. In August 2018 the CEOs of 181 powerful multinationals, who dominate the Business Roundtable, decreed the purpose should no longer be shareholder primacy; in future it would be about all stakeholders.
All in all you might have thought the January 2023 WEF meeting would have been a celebration of global corporate elites’ control of the ESG agenda. But no. Instead of celebration it seems this year’s event spent much time defending the presumption that the world’s powerful and wealthy had the best solutions for the world’s problems.
Lined up at this year’s meeting were the CEOs of Amazon, JPMorgan, Pfizer and Moderna, the president of the European Commission, the MD of the International Monetary Fund, the general secretary of Nato, the chiefs of the FBI and MI6, WEF founder Klaus Schwab and Fink. Each of them has considerable experience running large companies or large institutions, but none has ever won an election.
Yes, a few elected heads of states were also in attendance. However, perhaps aware of which way the political winds were blowing, most of the leaders of the more powerful countries gave the WEF a miss this year.
For Fink, the change in political climate must have been a disappointment. Having placed himself centre stage, he now found himself in the eye of a storm stirred up by US Republican politicians who are pushing back strongly against ESG. They are accusing BlackRock of boycotting energy companies and “pushing a narrow political agenda”. Several Republicancontrolled states have required government pension funds to divest from money managers who consider climate or racial equity concerns in their investing.
BlackRock says this has cost it about $4bn in funds under management but adds this should be seen against the $400bn it picked up in 2022.
But the US fund management industry isn’t taking the political backlash lightly and, ahead of the 2024 presidential election, is evidently expecting more action from the Republicans. Earlier this month the Financial Times reported that a dozen big financial companies, including BlackRock and Blackstone, have added warnings to their recently filed annual reports about “competing demands” on ESG investing that could hurt their financial performance.
Each of the firms said antiESG sentiment had gained momentum across the US and that this could negatively affect any fundraising they might plan to do.
While the political pushback in the US may be the focus of attention (understandably so, given how the US dominates global trends) it is not the only ESG-related battle the corporate elite is facing.
Thomas Fazi is one of a growing number of writers and commentators pushing back against the way in which the corporate elite has hijacked the ESG agenda. Fazi fears that by placing a self-selected group of unelected, unaccountable stakeholders mainly corporations in charge of global ESG decisions, citizens who are theoretically able to exercise some degree of influence over policy are prevented from doing so.
In addition to this accountability dimension, opponents believe the corporate hijacking has encouraged greenwashing, with some of the world’s largest and most corrupting, polluting and abusive firms signing off on their ESG codes without fear of challenge.
Fink’s annual letters to his investee companies may have to start addressing a more complex world.