Guest essay by Eric Worrall
Mainstream media is reporting that Blackrock Vice Chairman Philipp Hildebrand thinks investors should consider environmental benefits rather than simply focussing on maximum return on investment. But there is more to this story than some reports might suggest.
‘We have to change capitalism’ to beat climate change, says world’s biggest asset manager
By Climate Home News on 25 January 2018
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Climate Home News
Capitalism must change to avert climate change, according to the vice-chair of the world’s largest asset manager, Blackrock.
Two weeks ago, Blackrock boss Larry Fink shook the corporate world with a letter demanding social responsibility in return for the support of his company, which manages around $6 trillion in assets.
On Wednesday at the annual World Economic Forum in Davos, Philipp Hildebrand expanded on that theme in a discussion of “fiduciary duty” – the responsibility to make clients the best return on their investments.
…
That would mean funds like Blackrock could become duty-bound to consider environmental risks such as climate change while making investments. It would create a dramatic shift, he said, but warned it would take time.
“We have to be realistic, we also have an enterprise to run, we have shareholders, this is a complicated story. Nobody is served by reducing this to very simple, fast things that we have to do immediately.
We have to change capitalism. This is really what’s at stake here. And frankly we need a new contract between companies, investors and governments,” said Hildebrand.
Former US president Al Gore, who was on the panel with the Blackrock executive, agreed that the field of research was still evolving.
But he said: “In 26 sectors of the economy, the vast majority of them, the companies that integrate ESG (environmental, social and governance) into their business plans perform better.”
…
The following is from Blackrock founder Larry Fink’s letter;
… In 2017, equities enjoyed an extraordinary run – with record highs across a wide range of sectors – and yet popular frustration and apprehension about the future simultaneously reached new heights. We are seeing a paradox of high returns and high anxiety. Since the financial crisis, those with capital have reaped enormous benefits. At the same time, many individuals across the world are facing a combination of low rates, low wage growth, and inadequate retirement systems. Many don’t have the financial capacity, the resources, or the tools to save effectively; those who are invested are too often over-allocated to cash. For millions, the prospect of a secure retirement is slipping further and further away – especially among workers with less education, whose job security is increasingly tenuous. I believe these trends are a major source of the anxiety and polarization that we see across the world today.
We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.
A new model for corporate governance
Globally, investors’ increasing use of index funds is driving a transformation in BlackRock’s fiduciary responsibility and the wider landscape of corporate governance. In the $1.7 trillion in active funds we manage, BlackRock can choose to sell the securities of a company if we are doubtful about its strategic direction or long-term growth. In managing our index funds, however, BlackRock cannot express its disapproval by selling the company’s securities as long as that company remains in the relevant index. As a result, our responsibility to engage and vote is more important than ever. In this sense, index investors are the ultimate long-term investors – providing patient capital for companies to grow and prosper.
…
The statement of long-term strategy is essential to understanding a company’s actions and policies, its preparation for potential challenges, and the context of its shorter-term decisions. Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.
…
Read more: https://www.blackrock.com/corporate/en-au/investor-relations/larry-fink-ceo-letter.
I can’t help thinking Blackrock’s top people have done a remarkably poor job of communicating their ideas, and possibly not fully thought through the consequences of some of their ideas.
I agree with Blackrock that governments are doing a very poor job of preparing people for the future – but governments always do a bad job. Arguably governments are doing an unusually poor job of managing education, law enforcement and public finances by historical standards, though maybe thanks to the Internet we are simply more aware of their mistakes.
The climate message in my opinion is a bit of a red herring. Blackrock might be worried about Climate Change, though this doesn’t mean they’ve bought into the whole climate social justice package. But weaving their climate reference into a message of corporate responsibility has created a lot of confusion.
Companies should invest in their employees. But this investment must be tempered with the knowledge that other companies might take advantage of companies which invest in employees, by poaching well trained employees from their rivals rather than training their own.
I think Blackrock executives are motivated by compassion for the suffering they see, though I also think Blackrock is worried that the frustration and suffering of ordinary people might empower politicians to take radical action, such as seizing or heavily taxing the assets of companies like Blackrock.
Where I think Blackrock has made a mistake, is that people ultimately have to take responsibility for fixing their own lives. You can lead a horse to water but you can’t make it drink. Look at all the people who needlessly live in fear of the carbon demon, despite the wide availability of information on the web and elsewhere, which demonstrates climate risks are wildly exaggerated. People who take responsibility do their own research. People who don’t take responsibility for their own education remain the victims of scare stories they read or see on television.
Many rich people provide scholarships, try to give something back to society. But this is the limit of what can be done. You can offer someone help, but you can’t make people accept that help – the recipient has to be willing to accept the help which is offered.
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Sounds like there needs to be some changes made at Blackrock.
Capitalism ? There is more capitalism in China !
As long as the not federal reserve is in control there is no capitalism.
You have one really, really strange definition of capitalism.
The society we live in now has nothing to do with capitalism. That’s why it doesn’t work and is on the brink of collapse.
The federal reserve system is a communist system.
Not even close.
“We have to change capitalism. This is really what’s at stake here. And frankly we need a new contract between companies, investors and governments,” said Hildebrand.”
In other words… now that we’re rich it is time to change the rules to make sure we get richer.
Build a wall around Davos and let them not escape. It would make the world a much better place.
Gee, Eric you may be too kind to Blackrock. This is another garden vareity Champagne Socialist, like Soros, Steyer, the Rocefeller Foundation folks, Clintons…In the face of what has happened in US politics, UK, Austria and across Eastern Europe and the unprofitable vilification of Russia because they wont go along with this Euro/UN Neomarxbrothers putsch, this stuff has the deep odor of desperation. These ‘geniuses’ are at base surprisingly stupid. They’ve tipped their ugly hand and they are still going all-in. They are not doing the analysis because they fear the obvious result. These arethe most deluded D*nilists. Pull your cash out of Black Rock. My analysis they are about to under perform. The heads are going to be replaced soon to staunch the bleeding. I’m betting on America. I think the Dow was one of the indexesth3se Turkey’s are talking about. With Brexit, Soros, who has artificially kept an otherwise failing currency – the Euro afloat- it is now adjusting to its real value- it has another 50% to decline.
Socialism is just a prelude to communism, these idiots never learn…
They are convinced that this time it’s going to work, because this time they are going to be the ones in charge.
A communist is a socialist with a gun.
If Corporate America wants to do something about greenhouse gases and the environment…how about smaller offices and far more employees telecommuting? It reduces emissions of GHGs and other pollutants from vehicle use, reduces air pollution from regularly dry-cleaning suits, etc.
Blackrock has 13,000 employees in 70 offices in 30 countries. Fink himself has 3 homes – Manhattan, North Salem (NY), and Vail (CO). How environmentally responsible is that?
Yes, let’s change capitalism. Let’s bring back the free market, abolish the Federal Reserve, shut down the crony banks, and the crony corporations, repeal ObamaCare, and eliminate the paperwork burden.
Isn’t it wonderful, doesn’t it give you a great feeling to be able to decide how to spend other people’s money? Just look at all the good you could do.
Hint: the road to hell is paved with good intentions.
Elections do have consequences as Chairman Barry said. This lot are seeing that and trying to turn the new tide. Vainly, it will be, and soon.
Change capitalisim to what? What is (or are) the alternatives?
Bet is socialisim…
The only thing I need to change is moving any of my investment portfolio out of Blackrock.
“I think Blackrock executives are motivated by compassion for the suffering they see…”
Were that true, Blackrock executives would be putting some profits into bringing cheap electricity and clean water into third world countries. Those two improvements would ameliorate more suffering than doing anything else.
But Blackrock executives are apparently doing no such thing.
Instead, they’re moaning about climate and capitalism, and angling for a global state of unelected technocrats, with power centrally located and perfectly set up for a little crony back-$cratching.
It seems most likely to me that Blackrock executives are virtue-posing hypocrites, who see a pathway to the easy life.
As we see the collectivist products of our schools march through our various institutions, I’m reminded that political theorist and novelist Ayn Rand maintained that controlling/influencing the culture was more important than getting involved with political campaigns. They have found that race and pollution, rather than poverty, is the reason we have to give up our freedom. If those two issues are ever solved, they will find another excuse.
I still think there is room to believe they are misinformed rather than bad. The good news, if I am right, is they will figure out their mistake. One thing which holds true about all the investment bankers I’ve met is they don’t stay misinformed forever, their business is a quest to separate fact from fiction. Investment bankers who can’t do this don’t make it.
https://www.blackrock.com/corporate/en-au/about-us/philanthropy/kiva
But the reality is that the climate change we have been experiencing, based on the paleoclimate record and the work done with modeling, is caused by the sun and the oceans over which mankind has no control and no change to our economic system is going to change that. There is no real evidence that CO2 has any effect on climate and plenty of sceintific rational to support the idea that the climate sensivity of CO2 is zero. The AGW conjecture is based upon the existance of a radiant greenhouse effect caused by trace gases with LWIR absorption bands but no such effect has been observed in a real greenhouse, in the Earth’s atmosphere, or anywhere else in the solar system. The radiant greenhouse effect is science fiction hence the AGW conjecture is science fiction. We should not be trying to change our economic system because of science fiction. We already employ a means of providing for environmental quality and related infrastructure, that is through government through taxes. The big problem is that government is overhead to the economy especially if taxes are wasted of stuf that has no economic value. Trying to solve a problem that mankind does not have the power to solve is of no economic value.
And here you see the purpose of the fight against climate change. The purpose is not to “change capitalism”, because none of here actually live in capitalistic countries. How is it possible that Americans believe they live in a capitalist economy when the federal tax code numbers nearly 80,000 pages, the federal register increases by more than 60,000 pages per year, and the various states have their own countless taxes, rules, and regulations? How can capitalism have failed in places where it has never really existed?
The purpose is to further transfer control of the world’s economy from it’s citizens to the state and the state’s cronies.
Too many people here are arguing about whether AGW is real or not real. Whether it is real or not is irrelevant. If climate change is real, giving the state more power, and giving big industry and big finance the ability to earn profits via state-granted subsidies and monopoly powers will do nothing to reduce climate change. Much money will be spent, little will be spent usefully. The people will have to make great sacrifices to reduce their consumption of energy, while the state and it’s friends will make no sacrifices at all. Have we not seen all of our climate change champions fighting the war against global warming by jetting around the world ceaselessly, traveling in heavy SUV’s, and living in homes which consume as much energy as entire ordinary neighborhoods?
The people most fooled by these shenanigans are those on the left. They think that granting the state more power to regulate results in a fairer and more equal society. It does not. What has been the result of increased state control over the past few decades? The left complains that as people we are becoming poorer, less equal, more divided. Yet, these problems have occurred in lockstep with ever increasing taxation, regulation, and expensive efforts to improve equality, and quality of life. Does the left really think that doing more of the same will suddenly begin working? What was Einstein’s definition of insanity?
The left make the fatal assumption that those who control the state are fundamentally different from those who run corporations. The only difference between the state and business is that when we deal with business, we have a choice, we can buy or not buy as we please. But with the state that is not so. We are required to abide by the state’s rules and regulations, to pay for things we may or may not need, even though we could often provide these things for ourselves at a much lower cost.
Those who run the state have at least as much self-interest as the worst of those who run corporations or big businesses, but are often less scrupulous. If the left gives these men more power to control the economy in order to increase fairness and equality, do they honestly think that such power would be used to such ends? If history is any teacher, the answer is “no”.
I don’t give the right a free ride here, because in Washington there is no “right.” There are no conservatives, capitalists, or free-market supporters in Washington, regardless of what they tell their constituents. If such were really true, we would be seeing much greater changes than we are. Despite controlling the presidency, both houses of congress, and the supreme court, there has been no action to deregulate outside the personal actions of president Trump, often against the resistance of the republican majority.
Companies like Blackrock see that the state is ever increasing it’s control over the world’s wealth, and the only way to beat the state is to join it. Who needs profits when one can receive subsidies? Why compete by producing the best product or services for the best price when the people will be coerced into buying your products and services?
…Two weeks ago, Blackrock boss Larry Fink shook the corporate world with a letter demanding social responsibility in return for the support of his company, which manages around $6 trillion in assets…
From Bloomberg April 2017…
‘…Fink, 64, got an $8 million cash bonus and about $16.4 million in deferred shares, some tied to long-term performance goals, the New York-based firm said in a regulatory filing Friday. He also got a $900,000 salary and about $193,000 in perks. The package fell 1.2 percent from 2015….’
So is that puny $900,000 salary some sort of incentive to get up and leave any of his 3 ‘palaces’ and actually go to work. And when he gets there… in his Limo… what does he actually do?
Renegotiate his salary package for next year? Write a column for Green Socialist Weekly about all the social evils of Private Enterprise.
How about we change the Executive Lotto Pay Structure before we begin dismantling the system that, when applied, has transformed poverty where ever it goes.
This company and its executives are full of BS. And more and more of these companies with massive assets are parroting the Climate Narrative.
Do they Believe it or are they scared of being seen as the uncaring capitalist ogre?
And having to deal with the outrage of The Climate Kooks.
This is where I stopped reading. Did I blot out Al being a POTUS from my memory or something?
Besides that, why did he refer to that field of research in the past tense?
“still evolving”
‘The Science is Settled’
Ummmmmm – might there be a dichotomy?
Someone above called BS. I Agree.
Auto
In case anyone missed it, HAPPY AUSTRALIA DAY.
To be known in the future as “End of the Stone Age in Australia Day”.
Down Under export. Clue in today’s crossword. Four letters.
OPAL
Ah, the socialist end game finally comes into view…
Unfortunately when left leaning types look to change capitalism into a utopian vision using ideologically driven scientific fantasies, everyone, except for those in charge, ends up broke and starving. They don’t know what they are doing. They don’t know that they don’t know and millions of people end up dead (releasing more carbon).
Capitalism, which is based on consumerism, will be forced to change when it eventually runs out of consumers.
????
It is a little complicated, but to simplify, notice how the economy declines when consumer confidence declines. The economy is driven by consumers willingness to buy. Now, consider that in the future, consumers will be less able to buy because of a lack of high paying jobs (and the inability of many to qualify for the jobs that are available). Same result. Check out what the millennials are doing.
I think that business is eventually be more involved in education than they are now. They will have schools for entry-level people to train them for the work that business wants them to do. Of course, this will be for work that cannot be automated. But even if business reduces costs through automation. consumers are needed to purchase goods and services.
. . .business will eventually be. . .
There are still plenty of high paying jobs.
The jobs that are disappearing are low skill jobs.
Regardless, if costs and wages are coming down at the same rate, it doesn’t matter.
Except when government and unions get involved, automation drives down costs.
MarkW – and automation eliminates jobs, even high paying jobs.
The vast majority are low skilled jobs.
Automation creates more high skill jobs than it replaces.
MarkW – But what about the people who cannot do the jobs that require high skills? Social Darwinism writes them off. Do you? What is your solution to the problem?
The only way to run out of consumers is for all of them to die.
Or for them to have only a subsistence-level income that does not allow them to be consumers of anything but necessities.
Since technology doesn’t do that, you have nothing to worry about.
If you want poverty, get government involved.
Government is involved. Liberalism requires it.
Mussolini defined Fascism as the combination of big business and big government.
Blackrock meet Obama meet Al Gore
What the man really means is that he doesn’t think Blackrock is getting its fair share of crony capitalism. Another villain straight out of “Atlas Shrugged”.
We need to change Capitalism not because it is essentially bad, but examples like raiding your employees pension funds, stashing them abroad, then declaring bankruptcy leaving others to clean up your mess can never be an ethical foundation for an economy.
I say again, what capitalism? The examples you give are not examples of capitalism, they are examples of the corruption, and simple crime. Capitalism is simple, if you succeed, you reap the benefits of that success. If you fail, you are entirely responsible for the consequences of that failure.
Countless laws and regulations governing business are passed every year. These laws contain loopholes and exemptions which apply to certain companies or industries. If you donate enough money to a certain person’s campaign, hire his worthless son-in-law as an executive, or simply hand over a bag of unmarked bills, you get your loophole or exemption, and your competitors or potential competitors do not.
Turn back the clock 100 years. In 1918, how many car companies existed in America? How many metal foundries? How many airplane companies? Motorcycle companies? Radio companies? How many independent banks?
Coming back to 2018, how many of these companies do we have now? Isn’t it rather surprising that after a century of population growth and industrialization that we now have far fewer of these companies than we did in 1918?
A hundred years ago it was not that hard to start a new manufacturing company. An idea, some money, and a lot of elbow grease, and you were on your way. How hard is it to start a new manufacturing company today? How long does it take to build a new factory, foundry, warehouse, or mine? How much does it cost?
Those countless pages in the the federal and state tax codes, the endless rules and regulations contained in the federal and state registers were not created so much to protect consumers and the environment as they were to protect established businesses from competition.
The fight against climate change is yet a new way to regulate the economy, to protect established businesses and corporations, and restrict the rise of new competitors.
There is no truly capitalist country in the world today. The only one which comes close would be Switzerland. With low taxes, not so many regulations, the lowest tariffs in Europe, and no minimum wage. And in the news yesterday, Switzerland managed to be rated as the “The Number One Country in the World” according to the “Best Countries” report.
What was it that FDR said about the necessity of competitive markets? “A program whose basic thesis is, not that the system of free enterprise for profit has failed in this generation, but that it has not been tried”
In our current system, the benefits of success are largely taken away. And, likewise, the consequences of failure are also taken away. Success is punished, failure is rewarded. What was formerly a thriving economy with countless companies, industries, and banks which rose and fell according to the times and their performance were eventually replaced by a handful of large companies and corporations who don’t need to compete, or suffer the consequences of failure. This is not capitalism, and none of us who are alive today have ever lived in a capitalist society.
Socialists like Gareth define capitalism as anything they don’t like.
It’s not like he’s smart enough to figure out what capitalism actually is.
You sound like someone arguing that Communism/socialism has not been tried. Just like Communism/socialism, Capitalism is functioning in the only way it can. You also sound like a social Darwinist, arguing for the survival of the fittest. A society that ignores the plight of the less capable cannot survive.
Likewise, Liberalism is functioning in the only way it can. Liberalism and Capitalism are slowly failing because of their inherent flaws. Many see the only current solution is to opt out by forming relationships, including economic relationships, with their friends and neighbors. Politics and economics breakdown when they get too big. They both result in bureaucracies that are driven by the iron law:
https://www.jerrypournelle.com/reports/jerryp/iron.html
Everyone of these so called inherent flaws of capitalism was originally introduced by government.
MarkW – introduced by liberal government of the Democrats and Republicans, which use different means for the same ends: to stay in control.
So you admit that the flaws you whine about, are not inherent to capitalism, but were introduced by government.
We are making progress.
Well, yes. Government gets involved because of the flaws in Capitalism. If Capitalism worked the way you think it does, there would be no need for the Government to be involved. But of course, government intervention does not fix the flaws. They are not fixable.
Your example has nothing to do with capitalism.
Sounds more like socialism any way.
vice CHAIRMAN (MAO) hildebrand: We have to change capitalism to beat climate change
http://punkerslut.com/pictures/mao01.jpg