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Can Larry Fink survive the ESG culture wars?

Talthough he likes write letters to thousands of CEOAt the same time, Larry Fink must cringe these days when one lands on his own doorstep. In recent months, the BlackRock chief, once feted for “democratizing” investment access, has received stinging missives from Republicans and Democrats alike. “Dear Mr. Fink,” began one of 19 republican state attorneys general on August 4, accusing BlackRock of selling its clients down by pursuing an “activist” agenda on climate change. “Dear Mr. Fink,” another began on September 21 from the progressive director of the New York City Comptroller’s Office, telling BlackRock that it was scamming investors and the planet by “rolling back” on its climate commitment. . The charges are mirror images of each other, which makes them even more difficult to deal with. BlackRock can’t look like one group of government clients without upsetting the other.

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Who would have thought, as Fink built a business for 35 years based on computing power, low fees and economies of scale, that something as innocuous as index investing could become a source of controversy? BlackRock, based in midtown Manhattan, eschews Wall Street glitz. Fink, the son of a shoe store owner, has the skepticism of a middle-class Democrat about quick money. His letters, known for aphorisms like “climate risk is investment risk,” promote kinder, gentler free-market enterprises, but are by no means anti-capitalist. Tall, bespectacled and sensibly dressed, he’s an unlikely punching bag.

Two things have happened that have made BlackRock a nightmare. The first is the size. Last year, the financial times called Mr. Fink “The Ten Trillion Dollar Man”, based on the value of BlackRock’s assets under management. Since then, his investment portfolio has shrunk to about $8.5 trillion as markets have tumbled. But he remains the world’s largest asset manager, investing on behalf of his clients in nearly every major US firm and selling exchange-traded funds around the world.

The second development is America’s culture wars for awakening. BlackRock is a large seller of investment products that take into account environmental, social and governance aspects (IT G) factors other than financial ones. It acts as a quasi-regulator by pressuring companies to disclose their climate risks. That attracts a lot of customers. But in a politically divided country, it alienates others.

None of this should be taken lightly. BlackRock and other providers of index funds have for some time faced accusations that their ownership of shares in competitors in the same industry raised competition concerns. They successfully parried the attack, arguing that their holdings were too small and their influence too dispersed to make a difference, and that they are passive asset owners with no desire to meddle in the running of the company anyway. The size of the defense has seemed shaky for some time: Last year, BlackRock and two other giants, Vanguard and State Street, together owned 22% of the average company in the world. s&p 500 of the largest American companies, up from 13.5% in 2008. Now all is G the conversation makes it sound like BlackRock isn’t so passive after all. In their letter, the attorneys general duly argued that BlackRock and others’ attempt to “impose” net-zero emissions targets on companies raised antitrust concerns. BlackRock insists that it does not coordinate votes on such matters or dictate a decarbonization agenda. But the ghost of Teddy Roosevelt has returned.

Do these controversies jeopardize BlackRock’s business model? Not necessarily. Mr. Fink has an instinct for finding safety in the middle ground. It may be portrayed as a climate crusader, but in reality, BlackRock has rarely gone beyond what its institutional clients are comfortable with in promoting a climate agenda. (He shies away from more impactful policies, such as dissuading companies from lobbying against environmental regulations.) It may appear that he is wielding a large club; BlackRock gained a lot of publicity last year for backing an activist campaign to green the board of directors of ExxonMobil, an oil giant. This year, however, it has shaken a twig. BlackRock supported 24% of shareholder resolutions on environmental and social matters, up from 43% last year. Fink’s new mantra, no doubt with an eye on the Republican backlash, is that he doesn’t want to be the climate police.

Furthermore, BlackRock may soon be able to dodge the controversy. Around the world, standard setters are developing rules to harmonize how companies disclose climate information. That includes the Securities and Exchange Commission (SECOND), the regulator of the United States markets. Although Republicans, as well as conservative justices, may try to restrict the SECONDefforts to require emissions disclosure, the direction is clear. If real regulators do their job, there is no need for BlackRock to act like an unofficial one.

Another path out of culture wars is innovation. Fink’s shrewdest attempt to get politicians off his back is to double down on shareholder democracy. In January, BlackRock expanded access to those who own almost half of its $4.9 billion of index funds to vote their own shares. If they do, you cannot be accused of using your votes to advance Fink’s personal interests. That will help fire the guns of Republican senators who, through the Investor Democracy is Expected proposal (indexgeddit?) Law, the goal of forcing the giants to let investors decide how to vote.


BlackRock still has culture wars to fight. He certainly finds it maddening that he is the only major US asset manager threatened with divestment from Texas pension funds for an alleged “boycott” of fossil fuel companies. He is, he points out, one of the world’s largest investors in fossil fuels. He will have to persuade other Republican states not to use it as a precedent.

Still, even with the political turmoil, the company continues to attract net inflows, thanks in part to its IT G business. Only if major investors start to see through the hollow promise of freedom of compensation IT G Does Mr. Fink really need to worry?

Read more from Schumpeter, our columnist on global business:
Is the warehouse business recession proof? (September 22)
The Rise of the Borderless Trustee (September 15)
Starbucks and the perils of corporate succession (September 8)

For more expert analysis of the biggest stories in economics, business and markets, sign up for Money Talks, our weekly newsletter.


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