You have likely heard of Blackrock. It is a large asset manager and investing firm. It has lots of products and manages over 10 trillion-with-a-"T" in investments.

If that strikes you as a lot, it is: Blackrock acts as a fiduciary for assets worth over 10% of global GDP.

It isn't a great stretch to say that the investment colossus is an impressive brand and company. It is very possible that you own some of their iShares ETFs or some other product. By the standards of the industry, they are pretty good investing vehicles.

Publicly, the company has taken an impressive leap in recent years by arguing that companies should adopt climate-friendly and zero carbon emissions targets.

Their argument, pushed very strongly by their founder and CEO, Larry Fink, has been that companies should adopt these strategies not out of any sense of altruism but precisely in order to protect their long term profits.

In other words, stakeholder capitalism - Fink's favored term for this holistic approach - isn't just good for the environment and society, it is also good business. Companies that do not plan for a carbon free future risk being disrupted and underperforming their competitors who act more responsibly.

There is not just virtue in acting virtuously, in other words, there is also competitive advantage.

It is a good argument and also likely correct over the long term. The devil, however, is always in the details.

There are two rather significant issues with Blackrock (and Fink's) approach:

The first is that, as Fink argues passionately in his latest shareholder letter, stakeholder capitalism is not political. Rather, he argues that as a good fiduciary and capitalist he must push policies that are in "the long term interests of your shareholders."

The second is that the principles that he so strongly advocates for, often shrunk down to the popular acronym E.S.G. or Environmental, Social and Governance values, mean very different things to different people.

On #1:

This apolitical nature of stakeholder capitalism might be true in a vacuum but any time you recommend a certain set of policies and strategies, no matter how ultimately positive, it will create a set of winners and losers. That will very quickly make it political.

Coal mines - a subject we have written on at some length - may be very clearly a net negative for the planet and long term economic growth when you are sitting in a boardroom. But when you are a coal miner or live in a community of coal miners your perspective is understandably very different.

Creating a set of losers because of a focus on a more inclusive and holistic stakeholder capitalism may be an acceptable tradeoff but pretending your policies have no downside is doubly problematic.

It is disingenuous for one thing.

For another, it will also create a constituency who know they must fight or be dismissed as irrelevant or, even worse, as morally undeserving of assistance.

If Larry Fink dislikes the politicization of stakeholder capitalism then he should start by examining his own role in pushing a crude and divisive new economic framework that exacerbates divisions and support for the very policies he supports.

And on #2:

Furthermore, the CEO's blind spot isn't just flawed in the sense that not everyone agrees with him. He is also, like many very successful capitalists, rather hypocritical about not just what is focusing on but how.

In other words, it is far from clear that Blackrock's own business practices what Fink's preaches.

Two recent and rather bold examples of Blackrock's "ESG for thee, not for me" are:

​Blackrock moving strongly into China with the announcement this summer that they are the very first foreign investment firm to be able to launch their own mutual funds for Chinese investors.

As Fink put it:

“The Chinese market represents a significant opportunity to help meet the long-term goals of investors in China and internationally,”

And second Blackrock found that their climate pledge had room to take an ownership stake in Saudi Arabia's natural gas pipeline network.​

Now, we do feel that business decisions like this damages Blackrock and especially Fink's credibility on the issue and hurts, rather than helps, his case when he lectures other companies about "getting serious on climate" and stakeholder capitalism

But away from the narrow issue of whether these business investments are as bad or worse than others and who has more integrity, we think this episode underlines a real vulnerability with Fink's idea concept of "stakeholder capitalism."

ESG principles, broadly put, are very important but it is also still far too subjective. Were Fink asked about the above he would no doubt respond that:

a) Blackrock had a right to make money in China. That is their business.

And he might be right! But that sounds an awful lot like what a coal miner might say or even a coal miner owner. Coal mining is their business.

and b) he would also no doubt argue that the world requires natural gas and Blackrock is helping make this critical and slightly cleaner fuel a part of the energy mix for economies that otherwise might depend on something far less optimal.....

And he might be right again! But others might point out that he is really just choosing the emphasize the "E" in ESG and conveniently (for his purposes) overlooking the "S" and also perhaps the "G" when dealing with Saudi Arabia.

So, the point is Fink and Blackrock look at ESG through a particular lens. One that, unsurprisingly, serves rather than crimps their profits.

They are incentivized to view stakeholder capitalism a certain way and they do. What does that suggest about others?

It might be similar to coal miners thinking coal mining isn't so bad because, though bad for the environment, it provides middle class jobs for rural Appalachia.

More seriously, it really suggests that the entire notion need more development and also a more neutral arbiter and one less intellectually and ethically hamstrung by his own many, many competing (and conflicting) self interests.

Just a thought.

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