On the battlefield of ideas, corporate CEOs are ducking the debate on the legitimacy of ESG.
Editor’s note: In the second part of our serialization, former BlackRock chief sustainable investment Tariq Fancy wonders what 70-year-old BlackRock CEO Larry Fink would tell a 22-year-old analyst about her future.
Since I published The Secret Diary of a “Sustainable Investor,” a steady drumbeat of revelations and news exposés have cast further doubt on the promises of the sustainable investment or ESG industry. Scandals involving the misrepresentation of ESG practices have caused share price crashes, CEO resignations, increasing regulatory scrutiny and growing fines for large banks and asset managers. Bloomberg Businessweek did an excellent exposé pointing out that ESG scores don’t even measure what you think they measure. (Check this: if Trump is reelected in 2024, the ESG scores of the worst polluters will magically rise.) Whistleblowers have emerged to desperately warn us about the need to do everything from regulating social media to fixing a broken carbon offsets system. And in a faux pas rich in historical irony, ESG investment managers were loading up on Russian fossil fuel producers as Russia was putting the finishing touches on its planned invasion of Ukraine.
Investing in predatory climate delay
The idea of ESG investing may have originally been well-intentioned, and many of the tools and standards can be useful. However, in its current iteration, it is destined to be remembered as yet another free-markets-self-correct fantasy responsible for delaying the kinds of reforms to the economic system — including new taxes and regulations — that are inconvenient to short-term economic interests but are fairly obvious in the long-term public interest.
Consider the hypocrisy of the corporate response to COVID-19. Companies were quick to accept expert recommendations to flatten the COVID-19 infections curve, including using government powers to enforce inconvenient measures that closed entire economies and kept billions of people in unprecedented lockdowns. But when it comes to flattening the greenhouse gas emissions curve, they oppose government regulation even though our best economic minds have been advising this for decades.
Larry Fink turns 70 years old this year; from the CEO role at BlackRock, he gains the most from the system, and because of his age, he is the least at risk for the consequences of inaction.
To those on the wrong end of the ESG transaction, these continued failures no longer feel like a collective mistake. They feel like a heist. Lest we forget, we’re not all in this together. Larry Fink turns 70 years old this year; from the CEO role at BlackRock, he gains the most from the system, and because of his age, he is the least at risk for the consequences of inaction. What does he say to his 22-year-old analyst whose perspective is exactly the reverse? He surely knows that basing stakeholder capitalism on voluntary rather than mandatory compliance, meaning without significant new taxes and regulations, serves one set of his stakeholders at the expense of others. How does he reconcile the two?
He does not. While he loves to talk and talk, he refuses to engage in the one debate we really need to have. It will be the debate that future generations look back on and study, given the weight of its outcome to their trajectory. But it hasn’t started yet. Why? Because Fink and his CEO clients are ducking the fight behind a wall of disingenuous PR.
“We’ll have to take a pass”
At a hedge fund conference in New York in late 2021, just when conferences restarted in the post-vaccine era, the organizer later told me that my fireside chat session was originally meant to be a debate. “Unfortunately, we called all the banks, and they had heard what you were saying, but they kind of hemmed and hawed and, well, they basically agreed with a lot of it. When I asked if they’d take the other side of a debate, they all passed.”
How do you enforce accountability if powerful interests have no obligation to respond? At least the WBC, WBA, IBF and WBO, the world’s boxing bodies, often thought to be corrupt and incompetent, compel titleholders to take on mandatory challengers every so often. On the battlefield of ideas, however, and with the clock ticking, the idea titleholders in the business world can apparently reign supreme forever with no accountability — even while pretending to be able to fill a void left by a failing but at least democratically controlled public sector.
Featured photo: World Economic Forum