Woke Inc is under attack. Battle lines have been drawn in America’s latest culture war, with Ron DeSantis, Florida’s governor, its general. His most recent salvo against what he describes as “woke capitalism” was fired against BlackRock, the world’s biggest money manager. Its provocation was to invest at least some of its $8tn assets under management according to environmental, social and governance (ESG) principles and to tell companies to think about climate risk. This, according to DeSantis and Florida’s chief financial officer, flouts BlackRock’s fiduciary duty to prioritise returns above all else. Yet to try to tell a fund manager which companies it can and cannot invest in is to politicise business decisions in just the way DeSantis purports to be rallying against.
Florida pledged this month to pull as much as $2bn in long-term securities and short-term funds from BlackRock. DeSantis already led a resolution to stop the state’s pension funds from considering ESG when investing workers’ retirement savings. The move follows his attacks against other big businesses he deems too progressive, including Disney’s stance on LGBTQ issues — which cost the company, at least temporarily, its ability to run its own private government around its Orlando theme park. This playbook underscores why DeSantis is emerging as the great new hope of the Republican right, and why the odds are narrowing that he may beat Donald Trump to the party’s nomination for president. DeSantis possesses all of Trump’s prowess for tub-thumping politicking with little of his baggage.
But Florida is merely following other Republican states. About $1bn has been withdrawn from BlackRock by red states that argue ESG harms their economies and state pensions. Attorneys-general from 19 Republican states have targeted BlackRock for prioritising “activism” over fiduciary duty to their state pension funds.
The moves are pure political theatre. Regardless, for BlackRock, they have created a policy nightmare and a patchwork of liability across the US, let alone the rest of the world. There are signs that such posturing is having its desired effect. Vanguard, a rival to BlackRock, announced on Wednesday that it is leaving the financial alliance that aims to tackle climate change and which has attracted Republican ire.
Financially, the moves risk harming the ordinary working people that DeSantis and the 19 state attorneys-general claim to be fighting for. If pension funds have to sell their holdings to exit BlackRock during the current downturn in the market, that will only lock in losses for pension holders. States could face lawsuits if pension holders took a hit.
BlackRock is a natural target, not only due to its sheer size — it manages five of the top 20 US sustainable funds — but also because of the outspokenness of its founder, Larry Fink, on climate change; something that has made enemies in oil-heavy states such as Texas. Yet BlackRock’s ESG credentials have been questioned by the other end of the political spectrum for not going far enough. Some of its strategies allow for investment in fossil fuel companies as a way to further the transition to cleaner energy.
There are obvious issues with ESG, which has grown to be a $40tn industry where greenwashing and other cynical practices have emerged. But sustainable investing’s tension with money managers’ fiduciary duty is less clear cut. BlackRock argues that ignoring climate change risks investments over the long term. It is an argument that may need to be settled in court. Until then, in the manufactured war between big business and politics, it is ordinary pension holders who are caught in the crossfire.