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Larry Fink might be getting fewer Christmas cards this year. Over the past few months, BlackRock has made new enemies on both sides of the ESG debate.

On one side, the firm has become a favorite target of right-wing politicians, who say it is too focused on ESG and threaten to move state pension funds elsewhere. On the other, climate activists are calling the company out for not divesting from fossil fuels. BlackRock is either too ESG, or not ESG enough.

This reflects a broader shift in America this year: ESG is becoming a new front line in the culture wars.

Republicans have gone beyond just dismissing it as “woke investing”. Their arguments have become more refined, but they still often treat BlackRock as an avatar for the entire ESG movement, accusing the firm of breaching fiduciary duty and undermining democracy.

“I think it’s undemocratic of major asset managers to use their power to influence societal outcomes,” said Jimmy Patronis, CFO of the Florida Department of Financial Services, earlier this month.

“It’s got nothing to do with maximizing returns and is the opposite of what an asset manager is paid to do,” he added. “Florida’s Treasury Division is divesting from BlackRock because they have openly stated they’ve got other goals than producing returns.”

Whether or not BlackRock deserves to be singled out like this really depends on who you ask. Patronis clearly thinks it does, and the firm is also a favorite target of Vivek Ramaswamy, the outspoken anti-ESG investor who has been labelled “the CEO of Anti-Woke Inc”.

But these anti-ESG crusaders have a penchant for aggressive rhetoric. And it’s not like BlackRock has suddenly become a climate-change revolutionary — yes, the firm has committed to the goal of net zero by 2050, but Fink has made it that it will not be divesting from oil and gas.

“Divesting from entire sectors — or simply passing carbon-intensive assets from public markets to private markets — will not get the world to net zero,” he wrote in his annual letter to CEOs. ”BlackRock does not pursue divestment from oil and gas companies as a policy.”

Still, the anti-ESG movement has decided to make an example of BlackRock. How are other investment firms reacting?

For some, the reaction has been to pull back. Take Vanguard, for example.

Earlier this month, Vanguard withdrew from the Net Zero Asset Manager (NZAM) initiative, which supports the goal of net zero greenhouse gas emissions by 2050 or sooner (BlackRock remains a signatory).

“Such industry initiatives can advance constructive dialogue, but sometimes they can also result in confusion about the views of individual investment firms,” said Vanguard in a statement announcing the withdrawal. “That has been the case in this instance.”

The firm noted that it cannot guarantee that its funds will be aligned with net zero, as index fund managers “don’t choose the securities in a fund or dictate a portfolio company’s strategy or operations.”

Vanguard has come under plenty of scrutiny for its ESG policies, but perhaps more from the left side of the aisle than the right. It has been called out by protest groups for, among other things, its refusal to stop new investments in fossil fuels.

There’s a reason for that: as recently as July, the firm had 0% active in-house assets committed to net zero, according to a report by Morningstar; and days before Vanguard withdrew from NZAM, its Australian business blew the whistle on itself for greenwashing.

The company’s withdrawal from NZAM has sparked yet more criticism. But on the flipside, at least the firm is being upfront about the initiative’s limitations, and not making empty promises (Vanguard did not respond to a request for comment).

BlackRock is taking a different tack. When we approached the firm for comment about state divestments, this part of the spokesperson’s response:

“We are disturbed by the emerging trend of political initiatives like this that sacrifice access to high-quality investments and thereby jeopardize returns, which will ultimately hurt these states’ citizens.”

As the US inches closer to the 2024 elections, the battle over ESG is likely to intensify.

The debate is now unavoidably political. Last week, a Texas Senate Committee probed executives from BlackRock, ISS and State Street on their ESG practices; Vanguard was originally called to attend, but then excused after withdrawing from the NZAM.

“The Committee is encouraged by your withdrawal from the Net Zero Asset Managers initiative,” wrote Texas Senator Bryan Hughes in a letter to Vanguard.

Theoretically, this might encourage other firms to follow in Vanguard’s footsteps, just to get the anti-ESG lobby off their backs.

But while the anti-ESG lobby gets a lot of headlines these days, states like New York and Minnesota are drawing their own battle lines on the other side of the aisle. They are also looking to divest state pension funds — from fossil fuels.

For those in the asset management industry, all this noise is deafening.

If you’re under pressure to figure out what ESG means for your investing business, the soup-throwing protestors and silver-tongued anti-wokers do little to help. They don’t help you figure out whether the latest sustainability-linked bond deal actually holds the issuer to account, or how to build a more advanced ESG screening system for your portfolio.

The public debate presents the fight over ESG as a simple one. You’re either an eco-warrior or a hyper-capitalist libertarian; if you’re not divesting from fossil fuels, you might as well be building an oil rig in your own backyard.

If only it were that simple. This stuff is very complex! There is nuance!

Take divestment as an example: in a conference poll earlier this year, nearly 70% of the audience said divestment was a useful tool for achieving decarbonization; on the other hand, there are multiple examples of divestment leaving investors worse off (see this Bloomberg article).

One of the themes that has emerged around ESG this year is that it means many different things, possibly too many. Pitching it as a simple fight of good versus evil or tyranny versus democracy doesn’t clarify that confusion — it multiplies it.

As this new culture war escalates, the pressure to pick a side will increase. But there’s a lot to be said for sitting on the fence and choosing facts over factions.

BlackRock and Vanguard test new battle lines in ESG culture war

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