At One Day In July, we focus sustainable investing on the environment, recognizing the urgency of climate change and the tangible nature of the metrics available. We work to cut through the frenzied noise surrounding this growing field, while sticking to our basic principles: simplicity, low fees and personalized attention.
December 9, 2022
One thing I’ve learned from being in this business for more than a quarter century is that things often go too far and then over-correct.
There may be a mini-version of this playing out in ESG investing now. For several years, the momentum (and resulting profitability) behind ESG was so strong that even legitimate critiques were mostly marginalized. And as we’ve discussed in this forum before, there are legitimate critiques. The lack of uniformity around how ESG is defined is high on that list. That subjectivity makes the space ripe for abuse by greenwashers who want to ride the economic wave without actually walking the walk.
This year, however, has seen a swing to the opposite extreme. With most ESG returns lagging the market and the energy sector outperforming, many politicians and others have attacked low carbon investing as “woke capitalism.” Several states have either threatened to pull, or have actually begun pulling, assets from investment managers who they claim are promoting an anti-fossil fuel stance. Larry Fink, BlackRock’s CEO, has been an easy target because of BlackRock’s size in the market and because of his consistently vocalized belief that sustainability should be a core concern for business managers and investors.
Perhaps the most tragicomic example is the state treasurer for West Virginia, who called the views of Fink and others an “existential threat” to the state’s fossil fuel-driven economy. Is it me, or might we all be facing a different existential threat that is just a little more important? Instead of browbeating Larry Fink, maybe he should spend some effort transitioning the state’s economy away from its reliance on a declining industry.
Regardless, what has seemingly gotten lost in the bluster is that nobody is forcing anyone to do anything they don’t want to do. BlackRock offers plenty of funds that own fossil fuel companies, and anyone who wants to buy them can. At the heart of what Fink is saying is simply that there are real and foreseeable economic risks associated with climate change, and that any competent business manager or investor should consider those risks in making decisions. One person may decide the risks are acceptable, while another may not. That’s what free markets are about.
The best decision-makers understand the importance of objectivity and are able to prevent their own personal feelings from impairing their thought process. They also understand that not every issue has to be politicized. The planet is getting warmer. Extreme levels of warming are associated with significant environmental and financial risks, particularly for certain types of businesses. Renewable energy use has risen consistently at the expense of fossil fuels and will almost certainly continue to do so. Sometimes facts are just facts. Considering those facts when making decisions isn’t virtue signaling. It’s just prudent stewardship.
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