BlackRock’s Fink Not Against ESG Principles, Just The Word

At the Aspen Ideas Festival on Sunday, BlackRock
BLK
CEO Larry Fink backtracked his support for environmental, social, and governance investing. However, he only pulled support of the phrase ESG, not to the underlying principles.

ESG is a type of investing where non-financial factors are considered when making investment choices. ESG has grown significantly over the past few years following a push from the United Nations. In a very short time, ESG became an unregulated staple of corporate financial reporting.

BlackRock Inc. was an early acceptor and advocate for ESG, with Fink leading the charge. Managing over $8.5 trillion in assets, BlackRock Inc. is the world’s largest asset manager. This provides Fink, who founded the company and has served as CEO since 1988, significant influence over the development of ESG. As conservatives began pushing back on ESG, criticism of BlackRock and Fink quickly escalated.

As first reported by Axios, Fink stated during a panel discussion on ESG that he was “ashamed of being part of this conversation.” However, he later backtracked that comment by saying “I never said I was ashamed. I’m not ashamed. I do believe in conscientious capitalism.” Further, he stated “I’m not going to use the word ESG because it’s been misused by the far left and the far right.”

The pivot from ESG to “conscientious capitalism” is worth watching. While the term ESG is a relatively new, the concept has existed for decades, especially in Europe. Depending on the author and jurisdiction, it has been called impact investing, social impact investing, social investing, and sustainable investing. However, over the past few years the term ESG has emerged as the leader.

Also within the realm of the debate is the concept of stakeholder capitalism, where companies are required to consider interests beyond those of the shareholders. Stakeholder capitalism is the legal standard in most European jurisdictions. The United States adheres to a shareholder capitalism standard, where the directors of companies are solely focused on the needs of the shareholders. The push towards stakeholder capitalism in the U.S. is ingrained in the broader ESG debate. Or, more accurately, ESG has become the face of the stakeholder capitalism debate.

Conscientious capitalism is a concept credited to Whole Foods Market
WFM
co-founder John Mackey and Conscious Capitalism, Inc. cofounder Raj Sisodia. The concept, promoted in a 2014 book, introduces its four tenants as a higher purpose, stakeholder orientation, conscious leadership, and a conscious culture. It directly expands corporate responsibility beyond the traditional shareholder capitalism to stakeholder capitalism. A focus on more than profits. ESG is conscientious capitalism in practice.

Rebranding an idea is a core strategy in politics. Fink is correct that the phrase ESG has been misused by the far left and the far right. ESG is a complex financial concept that only a slim portion of the public truly understands. Those who are for and those who are against have wildly different understandings of ESG. Sides are being chosen along political lines, based on little information beyond a team mentality. If Fink’s shift from the phrase ESG is the first indicator of a broader push to rebrand, the ESG political debate may die while the concept continues as conscientious capitalism.