Larry Fink’s ESG comments make the US a bigger outlier

His comments have put ESG back in US news and once again, it’s not for the reason many corporate leaders want.

ESG (environment, social and governance) is becoming less about governance in America and more about labels. You must be for or against, which feeds into whether you’re right or left, pro or anti-big business, woke or not. Little mention is made of how it guides investors or influences strategy.

In short, it has evolved – or devolved – into a political weapon. Fink is in the middle of this, and he’s fed up.

Fink doesn’t have a problem with the principles of ESG at least. He has, however, rejected the terminology.

“I don’t use the word ESG any more,” he said at the Aspen Ideas Festival in Colorado in June, “because it’s been entirely weaponised … by the far left and weaponised by the far right.”

He stressed that he didn’t want to be part of the political deadlock ESG caused but acknowledged that he was nevertheless and that he was “ashamed” for it.

No, and neither has BlackRock. He also confirmed that the investing giant would continue investing according to ESG policies. BlackRock has seen some losses because of anti-ESG movements, but not enough to make a serious impact.

We also have reason to believe the anti-ESG movement in business is faltering as quick as it gathered momentum.

Some see Larry Fink’s ESG comments as admitting defeat; some don’t. Whatever you think of it, though, it certainly shows one thing clearer than ever: the United States is an ESG outlier, carving a path for itself vastly different from those in other jurisdictions.

Here more than anywhere else in the world, ESG has been swept into polarised politics. In what’s supposed to be modern trend in corporate governance, people are suddenly “taking sides”.

Each is at loggerheads with the other, grinding the country into an existential crisis, unable to decide on accepting or rejecting ESG. The rest of the world just watches.

Now, the head of the world’s most prominent investment firm has simply had enough. The tense debate is not worth it for him. He would rather avoid the quagmire completely. How successful he’ll be in this is up for debate.

The US is a big market. It shapes business trends globally. If the ESG debate has grown large enough to cause such a reaction from Larry Fink, then it’s definitely strong enough to permeate elsewhere.

Not necessarily. The US isn’t the only big market in the world – and it’s a long shot to think the same anti-ESG movement could sprout in a place like the EU, for example.

What we’re talking about is a fracturing of priorities and messaging. ESG is a universal term with universal goals. But now it’s under threat in the US – just the US.

Say Fink’s comments take hold, and ESG evolves into something different to reflect the US polarisation. Suddenly, global businesses don’t have a single mantra to consider at strategy meetings anymore. They have to balance two market ideologies, navigating the risks and opportunities of each.

It would be difficult.

Pro-ESG proponents, and Fink, say yes.

The Corporate Governance Institute’s own CEO David Duffy has said that ESG was only ever meant to be a “tool” for modern investing and a language that companies across the world can understand.

It was never meant to enter the political debate, he said, and now that it has – at least in the US – we don’t know what will happen next.

1. ESG loses importance in America.
2. ESG carries on as it is in America, even with political polarisation and big-time investors refusing to mention it by name.
3. ESG is “re-born” as another term with largely similar principles. It, too, may get swept into polarised politics.

Realistically, given the value of assets in the US and worldwide, it may be impossible to stop the ESG machine, no matter what we call it.

However, even though it wasn’t supposed to end up like this, we will need to follow the next elections in the US to get a clearer picture of where we’re heading.