Woke Capital Won’t Save the Planet—But It Will Crash the Economy

Rat Fink

High inflation and squeezed living standards make it a safe bet that come this time next year, woke capital will be running even faster in the opposite direction.

Judged by BlackRock CEO Larry Fink’s latest letter, January 2022 might turn out to have been the highwater mark of woke capitalism. Stakeholder capitalism is not “woke,” Fink says, because capitalism is driven by mutually beneficial relationships between businesses and their stakeholders. He’s right. What Fink describes is capitalism pure and simple, the stakeholder modifier adding nothing to the uniqueness of capitalism in harnessing competition and innovation for the benefit of all.

Fink’s shift is more than rhetorical. Just three years ago, in his 2019 “Profit and Purpose” letter, Fink told CEOs that the $24 trillion of wealth Millennials expect to inherit from their Boomer parents meant that ESG (environment, social, governance) issues “will be increasingly material to corporate valuations.” Now Fink tells them that “long-term profitability” is the measure by which markets will determine their companies’ success, dumping the ESG valuation metrics he’d previously championed.

Why, then, launch a Center for Stakeholder Capitalism, as BlackRock intends, and not simply a Center for Capitalism? “Your company’s purpose is its north star,” Fink says, echoing the Big Idea of his “Profit & Purpose” letter. BlackRock is the largest shareholder in Unilever. London-based Terry Smith, a top 15 Unilever shareholder, slammed Unilever’s top management for being obsessed with public displays of sustainability credentials at the expense of focusing on business fundamentals. In his letter to Fundsmith shareholders, Smith wrote, “a company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot.” Ouch.

The days of woke CEOs criticizing democratically elected politicians for, say, not mandating unisex bathrooms, also seem to be drawing to a close. CEOs should be thoughtful in how they address social issues, Fink says, advising them to show humility and stay grounded. But Fink himself has some way to travel along the humility road. He requires all companies BlackRock invests in to set short-, medium-, and long-term targets for greenhouse gas reductions—as if BlackRock is an enforcement arm of government and net zero is a done deal. “Incumbents need to be clear about their pathway [to] succeeding in a net zero economy,” he writes.

Successful investing—the deployment of capital based on expectations of future returns—is grounded in realism, not make-believe. The failure of last year’s UN climate summit in Glasgow—the summit does not rate a single mention in Fink’s 3,000-word letter—makes it plain to any objective observer that the world will not reach net zero anywhere close to the prescribed date. Forcing companies to conform to a scenario that has virtually no chance of materializing destroys more than shareholder value: it makes all stakeholders worse off. In this respect, ESG investing is antisocial because it is detrimental to society.

ESG investing won’t help the environment, either. Cutting off capital to publicly traded oil and gas companies will not reduce global greenhouse gas emissions. Fink knows this. “Any plan that focuses solely on limiting supply and fails to address demand for hydrocarbons will drive up energy prices,” he admits. Congress has not passed legislation to cap demand and is extremely unlikely to do so—a reality he is unwilling to accept.

Three months ago, former Treasury secretary Larry Summers made a stunning intervention when he criticized central bankers for defining themselves by their wokeness, by their social and environmental concerns. “We’re in more danger than we’ve been during my career of losing control of...

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