Republicans this week opened a new front in their war on “woke capital.” Attorneys general from 13 states filed a protest at the Federal Energy Regulatory Commission to keep Vanguard—one of the world’s largest asset managers—from purchasing shares in U.S. utility companies. The officials cited the company’s involvement in the Net Zero Asset Managers initiative—which aims to reduce emissions—as well as the sustainability-focused Ceres Investor Network. Vanguard, the attorneys general argued, aims “to shift global electricity production from natural gas and coal from approximately 67% of global electricity to approximately 0%.” Kentucky Attorney General Daniel Cameron told S&P Global that his office would “oppose any effort that will undermine Kentucky’s economy, destroy good paying jobs, and make it harder for Kentuckians to heat their homes and feed their families.”
The timing on this would be comical if the news itself weren’t so disturbing: As an interview with the CEO of the largest asset manager in the world made clear on Wednesday, his ilk pose much less of a threat to the fossil fuel economy than Cameron and his comrades in the battle against so-called environmental, social, and corporate governance, or ESG, would seem to believe.
Speaking to The New York Times’ Andrew Ross Sorkin this week, BlackRock CEO Larry Fink was resolute about his commitment to fossil fuels. “I actually believe we’re going to need hydrocarbons for 70 years,” he said when asked about Republican opposition to ESG and to him, personally. “I’m not happy with the narrative [that asset managers are hostile to fossil fuels] because it fills the airwaves,” he also said. He added that the company now spends considerable time defending itself against attacks from the right that are “not based on facts.”
While Republicans have articulated their crusade against ESG as a defense of America’s hardworking energy producers, oil drillers and Fink have plenty in common. Neither see a contradiction between theoretical commitments to decarbonization and continuing prolific fossil fuel production indefinitely. Since Republicans began introducing so-called “Energy Discrimination Elimination” bills into statehouses, BlackRock has repeatedly emphasized its sizable investments in fossil fuels at home and abroad.
“We expect to remain long-term investors in carbon-intensive companies, because they play crucial roles in the economy and in a successful transition,” the company wrote in a statement released this spring on achieving net-zero emissions by 2030. Even its ESG-themed investment products can still contain fossil fuel investments. Together, Blackrock and Vanguard have $60 billion invested in coal expansion. As of March, the biggest 30 asset managers have a combined $468 billion invested in 12 major private and state-owned oil and gas companies, including ExxonMobil and Saudi Aramco.
For Fink, at least, this isn’t in any sort of contradiction with his company’s high-minded, pragmatic commitment to a longer-term vision: They can continue to reap returns from fossil fuels and decarbonization alike. As he told The New York Times, the Inflation Reduction Act, or IRA, passed by Democrats in August will be an especially important part of that. As the economy transitions away from an era of asset price inflation and flashy unicorns, Fink envisions government subsidies for green technologies as a key frontier for investment in the years to come. “Those types of subsidies that are coming from the government to invest in decarbonization, it’s going to produce 12, 13, 14 percent returns very easily,” he said.
“Now you’re able to more safely invest in other things that provide you a coupon to get to your returns. Despite all the doom and gloom there are more opportunities to invest in the market today than there was a year ago,” he told Sorkin. Investments in carbon capture and sequestration and less greenhouse-gas-intensive farming methods, he added, can deliver returns—provided the government throws in enough sweeteners. They’ll also, at least theoretically, make it possible to keep digging fossil fuels out of the ground and selling them.
Fossil fuel executives have said about as much, praising the IRA’s expansion of tax credits for carbon capture and storage. On ExxonMobil’s most recent earnings call, CEO Darren Woods said the bill “contributed to the value proposition” for carbon capture and storage, adding that it “opens the aperture in terms of the [carbon dioxide] that can be cost effectively captured or avoided.” Occidental Petroleum CEO Vicki Hollub similarly told her investors that the IRA will allow them to develop further carbon capture and storage and direct air capture projects. On Chevron’s most recent earnings call, Chevron CEO Mike Wirth was especially enthused that the IRA had clarified their ability to snap up new leases on federal land for drilling in the Gulf of Mexico, saying that Chevron was “kind of encouraged by the Inflation Reduction Act.” All announced surging profits.
For BlackRock and fossil fuel companies alike, the climate policies that can pass muster in Congress don’t cut into their existing business so much as create exciting new asset classes and investment opportunities, since the state will now step in to backstop what might otherwise be risky investments. What the Republicans railing against ESG don’t seem to grasp is that the banks and asset managers they’re targeting are principally looking to cash in. So long as returns are flowing from both, they’ll keep investing in fossil fuels right alongside the new technologies meant to erase their greenhouse gas emissions.
What’s not clear—or relevant to companies solely interested in profits—is whether the technologies now being rendered more attractive investments by the IRA will actually work. Whether espoused by asset managers, fossil fuel executives, or the Biden administration, the win-win, “all of the above” approach to energy policy is a massive gamble from a decarbonization perspective. The bet is that new, clean stuff will make the old, dirty stuff harmless or irrelevant. That’s not guaranteed.
The irony of the GOP’s war on woke capital is just how much credit it gives the financial sector for speeding along the end of fossil fuels. Unfortunately, financiers have no such thing in mind.
