Can Larry Fink survive the ESG culture wars?


Though he likes to write letters to thousands of CEOs at once, Larry Fink must flinch these days when one lands on his own doorstep. In recent months the boss of BlackRock, once feted for “democratising” access to investment, has received stinging missives from Republicans and Democrats alike. “Dear Mr Fink,” started one from 19 GOP state attorneys-general on August 4th, accusing BlackRock of selling its customers short by pursuing an “activist” agenda on climate change. “Dear Mr Fink,” began another on September 21st from the progressive head of New York City’s Office of the Comptroller, telling BlackRock it was shortchanging investors—and the planet—by “backtracking” on its climate commitments. The charges are mirror images of each other, making them all the harder to deal with. BlackRock cannot appease one set of government clients without upsetting the other.

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Who would have thought, as Mr Fink built a business over 35 years based on computing power, low fees and economies of scale, that something as innocuous-sounding as index investing could become such a source of controversy? BlackRock, based in midtown Manhattan, eschews Wall Street’s flashiness. Mr Fink, the son of a shoe-shop owner, has a middle-class Democrat’s scepticism of the quick buck. His letters, known for aphorisms like “climate risk is investment risk”, promote kinder, gentler free-market enterprise, but are in no way anti-capitalist. Tall, bespectacled and sensibly dressed, he makes an unlikely punchbag.

Two things have happened to turn BlackRock into a bête noire. The first is 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 its investment portfolio has slipped to about $8.5trn as markets have plummeted. But it is still the world’s biggest asset manager, invests on behalf of its clients in almost all of America’s most important firms, and sells exchange-traded funds around the world.

The second development is America’s culture wars over woke-ism. BlackRock is a big seller of investment products that consider environmental, social and governance (ESG) factors alongside financial ones. It acts as a quasi-regulator in pushing companies to disclose their climate risks. That appeals to many clients. But in a politically divided country, it alienates others.

None of this is to be taken lightly. BlackRock and other index-fund providers have for a while faced allegations that their ownership of shares in competing firms in the same industry posed competition problems. They successfully parried the onslaught, arguing that their stakes were too small and their influence too dispersed to make a difference, and that they are anyway passive asset owners with no desire to meddle in company management. The size defence has looked shaky for some time: last year BlackRock and two other giants, Vanguard and State Street, together owned 22% of the average company in the s&p 500 index of big American firms, up from 13.5% in 2008. Now all the esg talk makes it sound as though BlackRock is not so passive after all. In their letter, the attorneys-general duly alleged that the attempt by BlackRock and others to “impose” net-zero targets on firms raised antitrust concerns. BlackRock insists it does not co-ordinate votes on such matters or dictate a decarbonisation agenda. But the ghost of Teddy Roosevelt is back.

Do such controversies jeopardise BlackRock’s business model? Not necessarily. Mr Fink has an instinct for finding safety in the middle ground. He may be portrayed as a climate crusader, but in reality, BlackRock has rarely gone further than its institutional clients are comfortable with in promoting a climate agenda. (It shies away from more impactful policies, such as dissuading firms from lobbying against environmental regulations.) He may look like he wields a big stick; BlackRock earned a lot of publicity last year for backing an activist campaign to greenify the board at ExxonMobil, an oil giant. This year, though, he has waved a twig. BlackRock supported 24% of shareholder resolutions on environmental and social matters, down from 43% last year. Mr Fink’s new mantra, no doubt with an eye on the Republican backlash, is that he has no wish to be the climate police.

Moreover, BlackRock may soon be able to sidestep the controversy. Around the world, standard-setters are drawing up rules to harmonise the way companies disclose climate information. That includes the Securities and Exchange Commission (SEC), America’s markets regulator. Though Republicans, as well as conservative judges, may try to restrain the SEC’s efforts to mandate emissions disclosures, the direction is clear. If actual regulators do their jobs, no need for BlackRock to act as an unofficial one.

Another path out of culture wars is innovation. Mr Fink’s shrewdest attempt to get politicians off his back is to double down on shareholder democracy. In January BlackRock expanded access to those owning almost half of its $4.9bn of index funds to vote their own shares. If they do, it cannot be accused of using their votes to advance Mr Fink’s personal interests. That will help spike the guns of Republican senators who, via the proposed Investor Democracy is Expected (index, geddit?) Act, aim to force the giants to let investors decide how to vote.


BlackRock still has culture wars to fight. It no doubt finds it maddening that it is the only big American asset manager to be threatened with divestment by Texas pension funds over an alleged “boycott” of fossil-fuel companies. It is, it points out, one of the world’s largest fossil-fuel investors. It will have to persuade other Republican states not to use that as a precedent.

Still, even with the political turmoil, the firm continues to attract net inflows, partly thanks to its ESG business. Only if mainstream investors start seeing through the hollow promise of trade-off-free ESG would Mr Fink really need to worry.

Read more from Schumpeter, our columnist on global business:
Is the warehouse business recession-proof? (Sep 22nd)
The rise of the borderless trustbuster (Sep 15th)
Starbucks and the perils of corporate succession (Sep 8th)

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