Larry Fink’s pen may have run out of ink—at least when it comes to a three-letter acronym that has become a four-letter word: ESG.
Last Wednesday, the BlackRock CEO released his annual letter to investors and America’s CEOs. Traditionally, the letter is a call to arms, imploring CEOs to fight climate change and injustice. This year, it is not. Or so BlackRock would have you think. A closer look at the letter reveals not a substantive retreat from ESG, but a vernacular one.
ESG is under fire. In August, nineteen attorneys general accused BlackRock of illegally using client money to push ESG goals. In December, the Texas legislature pilloried BlackRock on ESG. Even Elon Musk has called ESG a “scam” that has been “weaponized by phony social justice warriors.”
The backlash hit BlackRock hard. Eight state treasurers have pulled billions of dollars. Texas blacklisted the company. After years of growth, BlackRock’s US ESG funds had zero net inflows last year.
Amid the fallout, Mr. Fink’s 2023 letter strikes a different tone. Gone are proclamations that “every government, company, and shareholder must confront climate change” and “racial justice . . . cannot be solved without leadership from companies.” “Stakeholder capitalism”—a central theme of last year’s letter—has vanished. “ESG” is gone; “sustainability” appears just once. BlackRock even acknowledges that not all clients want their investment money used to accelerate climate goals.
But don’t be fooled. The letter doubles down on the firm’s ESG commitments—albeit via coded language. “Climate risk [i]s an investment risk,” Mr. Fink intones. BlackRock is “vocal” in “advocating for disclosures” on climate transition plans. While he claims BlackRock is innocently “asking questions” to get more data, his 2020 letter belies this claim: “[T]he goal cannot be transparency for transparency’s sake. Disclosure should be a means to achieving a more sustainable and inclusive capitalism.” The emphasis is his own.
Mr. Fink’s social pronouncements are similarly suspect. “[I]t’s critical for CEOs to use their voice in the world,” he writes. “Successful CEOs understand the need to build bonds with the full range of their stakeholders,” including “shareholders, clients, employees, partners, [and] the communities where [they] operate.” These passages are buried within the 9,000-word tome, but they signal that BlackRock’s retreat from ESG is from the acronym, not the creed.
More striking is what Mr. Fink doesn’t say. The letter is silent on BlackRock’s membership in Net Zero Asset Managers (NZAM), Climate Action 100+ and other organizations through which asset managers push companies to adopt net zero goals—particularly inexcusable after Vanguard’s NZAM exit last year. Worse, his letter disavows that BlackRock has ever been the “environmental police,” even after voting for plastic reduction, anti-deforestation, and net zero proposals last Spring. If BlackRock were serious about moving to a post-ESG investment model, it would chart a new path, rather than promise more of the same.
It won’t. BlackRock’s commitment to ESG “runs in[] the firm’s DNA,” BlackRock has said. It’s right. To this day, BlackRock’s website features presenters who explain: “A sustainable fund uses ESG integration, yes, but a non-sustainable fund also uses ESG”; “we can actually integrate ESG . . . regardless of whether that portfolio has an ESG objective or not”; “BlackRock now makes environmental considerations part of all our investment decisions.” If that’s no longer true, Larry Fink should say so.
It’s true the letter claims that BlackRock’s climate and social advocacy is all in service of increasing financial return. But this too is nothing new. BlackRock has always brushed its politicking with a thin veneer of capitalism: every letter since 2018 has claimed that BlackRock acts as a "fiduciary" seeking purely to maximize long-term financial gain. In recent years, it’s just added more coats. But this defense of ESG was and remains nothing but a transparent excuse to continue politicking as usual—as demonstrated by its 2022 voting record, continued membership in climate organizations, and commitment to ESG advocacy, despite study after study that ESG does not outperform. This year, the politicking-is-capitalism defense remains, but Larry Fink has tried to avoid tripping the sensor wire by refusing to say "stakeholder capitalism" or "ESG."
His letter is just the latest example of BlackRock’s relabeling efforts. Its 2023 US proxy voting guidelines, for example, renames the “environmental and social issues” section as “material sustainability-related risks and opportunities.” It rebranded an environmental investing group “Sustainable and Transition Solutions.” And BlackRock renamed one fund twice in six years, from an “impact” investment to “ESG” to “sustainable.” The words change, but the meaning stays the same.
Lest there be doubt, take it from Larry Fink himself: “I’ve changed how I listen to music, but I return to some tracks again and again,” his letter concludes. “The same is true when it comes to themes I advocate for on behalf of our clients.” When it comes to stakeholder capitalism and ESG, Larry Fink may rewrite the lyrics, but he’s unwilling to change his tune.
