When it comes to setting the course on Wall Street’s priorities, not many firms can compete with BlackRock. The firm is the world’s largest asset manager, with $7.81 trillion in assets under management. It’s to be expected that they would be enormously influential in the corporate sphere. It’s somewhat more surprising to see BlackRock take on the role of issue advocate with increasing audaciousness. But that issue advocacy is probably why BlackRock’s C-suite is quickly becoming a steppingstone to a Democratic presidential administration.
On Wall Street, BlackRock has been an enthusiastic proponent of environmental, social, and governance (ESG) principles. Their move towards prioritizing “stakeholders,” rather than shareholders, was an early sign of this realignment. Stakeholderism began with the Business Roundtable’s 2019 Statement on the Purpose of a Corporation. In it, 181 CEOs of major corporations agreed to put customers, communities, employees, suppliers, and the environment “first.”
It’s not clear how all these “stakeholders” can possibly get first priority, since their diverse interests often conflict. Nor is it actually feasible, as we’ve previously discussed, for companies to prioritize all these interests. Priority assumes one group’s interests matter most. With that, stakeholderism is essentially devoid of meaning.
But even so, BlackRock has embraced the stakeholder primacy model, and CEO Larry Fink’s communications are increasingly political. In his 2018 annual letter, Fink described how “every company must not only deliver financial performance, but also show how it makes a positive contribution to society” in order “to prosper over time.” His letter in 2020 promised BlackRock would pursue a “fair and just” transition to a “low-carbon world.” That transition involves picking winners and losers for their portfolios based on whether they use fossil fuels or promote sustainability. Fiduciary considerations take the back seat.
Presidential-Size Influence
It goes without saying that any company has the right to pursue whatever investment strategy they choose. But BlackRock’s worldview stretches beyond the walls of their firm. In the incoming presidential administration, three former C-suite executives will come on in various economic positions. The most recent addition is Michael Pyle, BlackRock’s Global Chief Investment Strategist, tapped as the Vice President’s chief economist. This, despite the fact that Pyle is not an economist. He has an economics undergraduate degree, but he later went to law school and clerked for Justice Merrick Garland.
Additionally, Brian Deese, who was the Global Head of Sustainable Investing at the firm, will be Biden’s national economic director, which certainly says something about the administration’s view on sustainable (vs. unsustainable) investing. Wally Adeyemo, who was Fink’s Chief of Staff, will serve as deputy Treasury secretary.
Given that BlackRock alumni will be working across several areas of the Biden administration, and given a trifecta in the federal government, how will the firm’s values and worldview on environmentalism and sustainability, stakeholderism, and inclusive capitalism impact the policy direction of the administration? The firm’s ability to pressure companies to follow them into their selected policy agendas – for example, BlackRock deprioritizing oil and gas companies in their portfolios, regardless of ROI – has been substantial. That’s not surprising, given BlackRock’s multi-trillion-dollar assets under management. But that influence will only grow with policy experts in the presidential administration. With major executives in the presidential administration, it’s likely we’ll see regulatory changes that make doing business much more challenging for companies, especially companies deemed “unfit” in Biden/Harris’ sustainable future.
Collateral Damage
In a particular twist of fate, the people most likely to suffer from these policy decisions are the “stakeholders” that BlackRock purports to care so deeply about. The everyday people whose 401ks, IRAs, and HSAs happen to be in Exxon, natural gas, or even an airline that necessarily runs on carbon fuels may see their stocks devalued. That hurts their retirement accounts, their health accounts, or their personal shares.
Everyday people’s retirement accounts should not be collateral damage in the moral pursuit of sustainability. Investors suffer when corporate and political leaders pick winners and losers based not on financial considerations, but on their own political preferences. That cannot be the norm in the upcoming administration.