As regular as the turn of the seasons, each January sees Larry Fink, founder and CEO of BlackRock, the world’s largest asset manager, publish a lengthy letter on the state of the world and its implications for finance and investors. This year, January turned to February and still no letter.
Instead, February saw Tim Buckley, CEO of Vanguard, global No. 2 asset manager, give a groundbreaking interview explaining Vanguard’s decision late last year to quit the Net Zero Asset Managers (NZAM) initiative, which had been formed ahead of the 2021 Glasgow climate conference to reallocate capital in line with net-zero emissions targets.
He warned investors against expecting superior returns from environmental, social, and governance (ESG) investing.
“Our research indicates that ESG investing does not have any advantage over broad-based investing,” Buckley said.
Membership in an alliance committed to achieving net-zero demands clairvoyance that no investment manager can promise.
“If Mr. Buckley is right, then hundreds of other financial institutions with trillions of assets under management are wrong”—Keeley’s unstated implication being that if Vanguard is right, BlackRock is also wrong.
Two years ago, BlackRock made a blunt demand of the companies that it invests in: “We are asking”—that’s an instruction; you can hardly say no to the world’s largest investor—"companies to disclose a plan for how their business model will be compatible with a net zero economy.”
This hasn’t been entirely walked back. BlackRock, Fink says, has been vocal in the past about companies disclosing how they plan to navigate the energy transition, but the tone now is softer and less vocal. It isn’t the role of an asset manager like BlackRock to engineer a particular outcome in the economy, Fink wrote, and it isn’t its place to tell companies what to do.
Forswearing the clairvoyance that Keeley criticizes, Fink said that BlackRock doesn’t “know the ultimate path and timing of the transition,” a position that isn’t as crystalline as Buckley’s but is hard to reconcile with BlackRock’s continued membership of NZAM. Had this been BlackRock’s position two years ago, it would have been noisily condemned by climate activists, and BlackRock would have been accused of sabotaging the Glasgow climate conference.
So far, there has scarcely been a murmur. The world is quietly moving on from net zero.
Even more revealing is the change in the number of mentions of trust and fiduciary. There are 21 mentions of trust this year and one in the 2021 letter. That letter, billed “Net zero: a fiduciary approach,” contained only one other mention of fiduciary, a lapse that bears out Keeley’s argument on the incompatibility of imposing climate targets on asset portfolios and investment managers discharging their fiduciary duties.
Fink’s emphasis has changed, too. Two years ago, Fink compared climate change with the COVID-19 pandemic as an existential threat exposing the fragility of society. This year, Russia’s invasion of Ukraine and heightened geopolitical tensions bring national and economic security “front and center.”
In the short term, making supply chains more resilient is highly inflationary, Fink wrote, and it’s fair to say that Fink doesn’t believe that the Inflation Reduction Act will reduce inflation.
“I believe inflation is more likely to stay closer to 3.5 percent or 4 percent in the next few years,” he wrote.
“When people are afraid, they may save, but they won’t invest,” Fink observed. “We need leaders today who will give people reasons to be hopeful, who can articulate a vision for a brighter future.”
Amen to that. It’s high time to end talk about existential crises to be addressed with extraordinarily costly measures that make people poorer and weaken national and economic security and instead turn attention to tackling soluble problems with positive solutions.
