Took them long enough, but at last BlackRock is calling out ESG

Reuters/Mike Segar

BlackRock, the US investment company with $9 trillion in assets around the world, used to be the high priest of advocating environmental, social and governance (ESG) investment criteria.

But no more, if reports in the Wall Street Journal are to be believed.

Mark Wiedman, the firm’s head of global client business, was reported as saying: “ESG is a vague grab bag for many clients.”

He promised instead to focus on “transition investing” – putting money into big infrastructure projects and industries that will speed the transition away from harmful fossil fuels and into renewables, alternatives and abatement measures.

Given that Wiedman is seen as a long-term successor to Larry Fink, BlackRock’s CEO and co-founder, who bamboozled many investors with his ESG dogma, that is a sea change from the world’s biggest investment group.

A couple of observations. First, well done. It is about time somebody with BlackRock’s clout called out the increasingly vague and unquantifiable, not to say zany, objectives of ESG.

Second: what took them so long? If they had learned a lesson from the Arabian Gulf some years ago, they would never have got involved in the whole ESG nonsense in the first place.

Policymakers in the region’s hydrocarbon producers realised long ago that there was no valid reason the initials ESG should be grouped together at all.

Persuaded by the science on the impact of fossil fuel emissions on the climate, they have sunk many billions of dollars into environmental measures – the “E” of ESG.

The list of projects, initiatives and green investments from just Saudi Arabia and the UAE would fill the rest of this column. The oil producers of the Gulf, routinely criticised by the global green lobby, have shown serious and pragmatic intent in tackling climate change via transformational investment – and received little credit for it from the ESG evangelicals.

It is about time somebody with BlackRock’s clout called out the increasingly vague, not to say zany, objectives of ESG

What investors in this region could not go along with are the “S” and “G” of the abbreviation.

In the West, “social” criteria have become mixed up with some fairly extreme positions on gender and sexuality issues that are simply not on the investment agenda in the Gulf.

“Governance” is something we all believe in, of course. Without a strong legal and regulatory framework, corporations cannot function in a modern economy.

But Western governance principles, as embodied in the ESG canon, do not always make sense in the Middle East and other economies where the state plays a bigger role than in Europe and North America.

In any case, “good” governance did not prevent some of the biggest economic and financial crises and scandals of the century from erupting in the West and infecting the rest of the world.

For all these reasons, regional investors have never really got fully on board with ESG criteria – though that has not stopped many large financial institutions ticking the box by setting up departments staffed with expensive “specialists” to monitor the rest of the business for signs of straying from ESG orthodoxy.

I suppose they can easily be rebranded “transition investment units”, or TIUs.

At last year’s Future Investment Initiative (FII) summit in Riyadh – “Davos in the desert” – a good deal of time was spent critiquing Western ESG models. They did not suit the investment needs of the rest of the world and failed spectacularly in the primary goal of attracting investment from the capital-rich West into the rest of the world, not least to finance energy transition and combat climate change.

BlackRock – a big participant at FII – obviously learned some lessons there and is having a rethink.

The rest of the investment world must surely follow suit. There is a big ESG backlash under way in the US, which has become stronger as America’s “culture wars” intensify in election year.

It will be harder for “woke” Europe to kick the ESG addiction. Maybe they should take some advice from the TIUs of the Gulf to help them go cold turkey?

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE