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Despite BlackRock’s retreat, the ESG battle hasn’t been won

BlackRock CEO Larry Fink attends the World Economic Forum annual meeting in Davos in 2020. Credit: Getty

January 10, 2024 - 10:00am

Until the start of 2023, only a small but spirited chorus of critics had been raising the alarm about the unobjectionably named Environmental, Social, and Governance (ESG) investment movement. All the while, investors turned a blind eye to the concentration of quasi-political power in the hands of unelected investment bankers and Davos-jetting bureaucrats. Exhibit A for the pervasiveness of the ESG agenda was investing giant BlackRock and its CEO Larry Fink, who prioritised Net Zero emissions, board diversity and “purpose-driven” commerce, and in doing so took the decision-making power in American capitalism away from shareholders. 

At that point, ESG remained a long-term trend. Global assets under management (AUM) in ESG had grown from $10 trillion in 2007 to more than $30 trillion. As late as November 2022, PricewaterhouseCoopers was predicting “exponential” growth for the initiative over the years to come. 

But last year everything changed, and this week it was reported that BlackRock would be laying off 600 employees as it looks to de-emphasise its ESG activities. The firm had lost 10% of its $10 trillion AUM. How, then, was the behemoth finally felled?

After eight out of 10 ESG funds underperformed the S&P index in 2022, many explained it away through that year’s tech slump. But when the same thing happened in 2023, and Morningstar announced that sustainable equity fund returns trailed indices last year by more than a percentage point, ESG funds’ chronic underperformance became undeniable. 

As the underwhelming financial evidence mounted, the political anti-ESG movement began growing real teeth. In December 2022, Florida withdrew $2 billion in state investments from BlackRock funds, and fully outlawed government investments in ESG in May 2023. Its approach rapidly spread to states including Ohio, Missouri, Louisiana, Arizona, Tennessee and Kentucky. By the end of 2023, ESG funds everywhere were haemorrhaging assets. As state, institutional, and private investors ran for cover, ESG investment vehicles lost 13% of their value — $5 trillion. 

Fink gave the first indication that the industry knew something was wrong, when his 2023 CEO letter — an annual tradition since 2012 — never came. While he did publish an annual letter to investors (a far more standard practice for the head of an investment company), that letter did not mention “ESG” once, and used the word “sustainability” only twice.

In the financial press, the turn away from ESG has largely been presented as a swing of the pendulum, inevitable as soon as the movement’s financial underperformance became widely known. But this is too simple an explanation. It is axiomatic that constrained investing makes less money than unconstrained investing. Knowledgeable investors have always known that without collusion between companies and government regulators to raise the financial and social costs of failing to invest in ESG, such investments would not earn them money.  

The indispensable element in bursting the ESG bubble has therefore not been financial, but political. We know this because Fink and his acolytes tell us as much. He has cited political “polarisation” as a reason for BlackRock’s move away from ESG, with allied New York City Comptroller Brad Lander bemoaning that conservatives had “made ESG investing part of the culture war”. Really, ESG’s boosters lost control of the narrative, one which relied on investors not knowing that their money was being used as collateral to push a political agenda for which they had never signed up. 

The fact remains, however, that the battle against ESG has not been won yet. While the industry has contracted by $5 trillion, it still controls $30 trillion in assets — an amount equivalent to five times the US federal budget. For the financial sector to move on fully from ESG will require sustained political and financial pressure — against both BlackRock and its competitors. 

BlackRock will recover from this last year, but investors will have to be vigilant to ensure that the firm’s changed approach remains deeper than surface-level. As financial reporter Chip Cutter noted this week, “many CEOs stress that they continue to follow ESG commitments made years ago — even if they are no longer talking about them as often publicly”. BlackRock’s leaders will surely find it difficult to sacrifice their political cache for truth in advertising.

But an even greater risk is that many of the policy goals of ESG — as the California Air Resources Board’s demonstrated in its 2035 gas car ban passed in 2022 — will move from the private sector’s purview into that of state and federal executive agencies. When the government makes ESG goals into federal policies, they will be adopted just as opaquely, with just as little public debate, but with no option to divest if we disagree.


John Masko is a journalist based in Boston, specialising in business and international politics.

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Andrew Buckley
Andrew Buckley
6 months ago

I have some money invested in what is called a medium risk fund. The company has a number of funds to choose from including an ESG fund.
My medium risk fund has outperformed the high risk one, the low risk one (not surprising this) and the ESG fund (by over 3% per annum) over the past 4 rather turbulent years of ups and downs.
What I wonder is how many people are really unaware of where there money is and what it is being spent on and what is the governance.
These “green” socially responsible funds seem to me to be little more than a sales pitch, the fees are higher with my fund managers for the “green” fund than the medium risk one.

Lizzie J
Lizzie J
6 months ago
Reply to  Andrew Buckley

I love the idea that ESG investing is a trap to lure all the luvvies into poor investments that will widen the gap between their wealth and that of the smart people who have no time for this nonsense. I bet the Post Office ticked lots of ESG boxes, earning the Directors a nice large bonus.

Charles Hedges
Charles Hedges
6 months ago
Reply to  Andrew Buckley

How much of the profits of ESG companies are due to subsidies and legislation altering the market? The major impact on company profits used to be tax. A simple way of minimising pollution are two simple rules.
Nothing must leave the site which impacts on someone else.The site must be left such that it does not cause pollution on another site. A brick nor a clean oil tank does not cause pollution. An oil tank containing oil is a pollution risk.

Alex Lekas
Alex Lekas
6 months ago

This is not going to go away. Bad ideas seldom do. They simply get renamed. In the US, racial discrimination was first rebranded as affirmative action and, more recently, as DEI, but the underlying mechanics never changed – certain racial groups were punished or privileged solely to due to their skin color.

Sophy T
Sophy T
6 months ago
Reply to  Alex Lekas

Yes – Asians applicants needing higher marks than black applicants for universities in USA. I think the court case found in the Asian students favour, but whether anything will come of it who knows.

Jeremy Bray
Jeremy Bray
6 months ago

The article quite rightly warns that ESG is becoming part of state legislation and that is far harder to get rid of than its introduction by powerful men in companies whose raison detre is making money. It is one thing impoverishing investors by your choices who tend to notice the effect quite quickly – it is another thing impoverishing the public.

Alex Lekas
Alex Lekas
6 months ago
Reply to  Jeremy Bray

can’t achieve the goal of “you will own nothing” without first impoverishing those who will own nothing.

Daniel Lee
Daniel Lee
6 months ago

Every institution has been overrun and corrupted by Progressive radicals. From school boards to boardrooms to the US government bureaucracy itself, a complete house-cleaning is the only solution. There will be screaming.

Walter Marvell
Walter Marvell
6 months ago

The problem is indeed the public sector. Specifically the vast state/public pension funds. Their boards are stuffed with Nat West/Post Office CBE DEI Hire Types who are busy agitating against defence firms and our oil and gas companies to look virtuous at their Islington soirees. All of them part of the Progressive State Blob gravy train. All a real menace to our prosperity, driving bucaneers into the arms of the enterprise friendly American exchanges.

Matthew Powell
Matthew Powell
6 months ago

If someone wishes to invest based on non financial metrics that’s their choice. The worry is what percentage of investors have no idea that their money has been shifted into ESG funds to fund other people’s political pet projects.

Kaya Singh
Kaya Singh
6 months ago

ESG is a scam. Financial sector now holds large tracts of forests, agricultural land rental & properties. None of you who comment on this work in Financial Sector Front Office positions. It is also a great way for companies to deduct from taxes. Employees Volunteer for MLK – is counted as ESG investment.

We ought to remember that the reason for 2008 crash was social justice activists in cahoots with Banks pushing for deregulation of mortgage lending industry to make it easy for black & brown lower class people with low credit scores to access credit & buy houses. They pushed for further deregulation to help those banks off load their loans & for creation of subprime mortgage lenders with limited to no oversight.

So if you are worried, you should be thinking along these lines.

Jeremy Bray
Jeremy Bray
6 months ago
Reply to  Kaya Singh

The social justice activist dynamics behind the mortgage lending scam pre 2008 are seldom highlighted. It is easier to go for the soft target of greedy bankers.

Champagne Socialist
Champagne Socialist
6 months ago
Reply to  Jeremy Bray

That’s because they don’t exist except in the fevered imagination of the extreme right

John Riordan
John Riordan
6 months ago

As usual you’re talking crap. In the USA, it is a matter of public record that the Democratic Party under Clinton, in conjunction with activist pressure groups, regulated retail home-loan lenders to meet racially-profiled lending targets. The lenders agreed to this on condition that Fannie Mae and Freddie Mac, the federally-controlled mortgage underwriters, provided a permanent default guanrantee on the loans in question.

The rest is history and you, as usual and once again, are talking crap.

Champagne Socialist
Champagne Socialist
6 months ago
Reply to  Kaya Singh

This is a comical misunderstanding of the 2008 crisis and would be even funnier if it weren’t for the open racism.
Is this what they are teaching you at Trump U?

Richard Craven
Richard Craven
6 months ago

This is a comical misunderstanding of the 2008 crisis and would be even funnier if it weren’t for the open racism.
Is this what they are teaching you at the 6th form college?

Champagne Socialist
Champagne Socialist
6 months ago

ESG is here to stay. So is DEI.
You lost. We won. Go cry.

John Riordan
John Riordan
6 months ago

Did you actually read the article? Either you didn’t bother reading it or more likely, you read it and didn’t understand it.

ESG has failed as a means of attracting capital on the open market to fund politically-motivated agendas. It is being forced back to where all other political agendas belong, namely mugging off the taxpayer because that’s the only way to pay for this crap. This is not “winning”. It is losing but with the same fat consolation prize that comes to politically-sponsored nonsense, that’s all.

Charles Hedges
Charles Hedges
6 months ago

Until everything collapses. In the 1970s the PLO let off a bomb on a El Al Jumbo Jet over Rome. The Pilot put the plane into a vertical dive before it was ripped apart and landed safely at Rome. The makes said the plane was not designed for such stresses. The EL Al pilot was an Israeli Airforce Pilot with combat experience, not a DEI hire. Historically many ex airforce pilots became civilian pilots, Alan Bristow would be an example.
Alan Bristow – Wikipedia
There are many criticisms of American Police Officers because of poor skills due to low standards of recruitment and training. Now compare with the actions Christian Craighead a highly experienced SAS NCO, In Mombasa, Kenya.
Who do you want when there are armed gunmen killing people; a DEI hire or a Christian Craighead ?

Rick Frazier
Rick Frazier
6 months ago

“Global assets under management (AUM) in ESG had grown from $10 trillion in 2007 to more than $30 trillion.”
These huge numbers have been thrown around for quite some time. Several people have taken the time to dig into these numbers over the past few years and found them to be unreliable at best. I’m one of those people. Using Bloomberg to identify all funds with ESG, Sustainable and Responsible type labels, only about $400 billion is being managed by such funds in the U.S. Meanwhile it’s not unusual to see claims that as much as $8 trillion is allocated to ESG funds in the U.S. It just doesn’t add up.

John Riordan
John Riordan
6 months ago

“It is axiomatic that constrained investing makes less money than unconstrained investing. Knowledgeable investors have always known that without collusion between companies and government regulators to raise the financial and social costs of failing toinvest in ESG, such investments would not earn them money. ”

I don’t consider myself a knowledgeable investor but even I can understand that if an enterprise is not primarily run to produce a return for its investors, then it is not going to produce returns that compete with enterprises that are set up that way. What I’d like to know is how many investors and policymakers are out there who have not grasped this fact? Are they still in jobs? If so, why?