How BlackRock and Ukraine are Ending the Anti-ESG Movement

Ukraine has enlisted a branch of the world’s leading financial firm, BlackRock, to help steer its reconstruction plans. The outcome is shaping up to be validation for ESG investors and a loss for U.S. politicians who have been leveraging the “woke capitalism” canard on behalf of fossil energy stakeholders.

The anti-ESG movement: fossil energy wolf in sheep’s clothing

The derogatory term “woke capitalism” is widely attributed to an opinion piece written by the conservative pundit Ross Douthat in 2018. He argued that the ESG (environment, social, governance) movement merely papers a veneer of progressivism over the same old business practices.

With that argument in hand, Republican policy makers have accused ESG funds of currying favor with Democratic lawmakers and their donors while mishandling their fiduciary duties and harming shareholders.

Without clear evidence of harm, however, the anti-ESG movement simply exists to mollify fossil energy stakeholders and quash clean energy investment, while tapping into the fear, resentment and religious extremism that motivates today’s Republican base voters.

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It's no accident that Republican officials in multiple states have singled out BlackRock for attack. BlackRock CEO Larry Fink has been a high-profile advocate for global decarbonization.

“Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy,” Fink emphasized in his annual letter to shareholders last year.

Woke or not, ESG investing is a permanent fixture

The anti-ESG movement appears to have had some effect in recent months. However, the case for businesses to cultivate an ESG profile is rooted in powerful demographic trends, and corporate decision makers are responding to those broader social and cultural shifts.

“Corporate sustainability teams are increasingly at the center of important business discussions, based on an intensifying stakeholder focus on ESG issues, expanding investor expectations, and shifting approaches to climate change and regulation,” Morningstar analyst Alli McCallion affirmed last month. She cited a recent Morningstar survey in which 90 percent of companies reported they had a formal ESG strategy either in hand or under development.

The well-known ESG advocate Robert Eccles also argued along similar lines, in an open letter to “all Republicans who are concerned about ESG” published by Forbes on January 1. 

“ESG isn’t what some on the left hope it to be. It isn’t what you on the right fear it to be. It’s simply about managing material risk factors for shareholder value creation,” Eccles wrote, underscoring the key role of transparency and objectivity.

BlackRock FMA and the prospects for an ESG-friendly reconstruction in Ukraine

BlackRock’s new relationship with the government of Ukraine also underscores the weakness of the case against ESG investing.

The arrangement comes under the BlackRock Financial Management Advisory group, which it emphasizes is a separate and independent branch of the firm.

The services provided by BlackRock FMA fit neatly into the transparency and objectivity framework expressed by Eccles and other ESG advocates.

“Financial Markets Advisory (FMA) provides a differentiated range of advisory services by leveraging the firm’s capital markets, data and risk analytics, technology, and financial modeling capabilities while maintaining stringent information barriers,” BlackRock states.

The arrangement with Ukraine was formalized in a Memorandum of Understanding (MoU), announced by BlackRock on November 16. Under the terms of the MoU, BlackRock FMA advise Ukraine’s Ministry of Economy on “establishing a roadmap for the investment framework’s implementation, including identifying design choices for the envisioned setup, structure, mandate and governance.”

A green recovery for Ukraine

All else being equal, Ukraine’s postwar recovery could focus on exploitation of its vast, largely untapped natural gas reserves. However, there are strong indications that the nation’s future energy profile is heading in a different direction under guidance from BlackRock FMA.

Although BlackRock FMA is structured as an independent entity, the agreement with Ukraine derives from discussions held last fall between Larry Fink and Ukrainian President Volodymyr Zelenskyy.

In addition, BlackRock credits Andrew Forrest, the founder and former CEO of Fortescue Metals Group, as being “instrumental” in facilitating discussions between BlackRock FMA and the government of Ukraine. Forrest continues to serve as non-executive chairman of Fortescue along with his other business interests.

Forrest’s involvement in the Ukraine talks is significant because Fortescue has positioned itself to be a leading driver of the global energy transition. The company announced an ambitious decarbonization plan last fall, with a strong focus on the global green hydrogen market.

Fortescue already has set the wheels in motion for scaling up green hydrogen production around the world, including here in the U.S. In September, Fortescue announced that its Fortescue Future Industries branch has launched an $80 million, 10-year investment program with the U.S. Department of Energy’s National Renewable Energy Laboratory, aimed at spurring “strong increase in manufacturing in the green industrial ecosystem.”

A green (hydrogen) recovery for Ukraine

Ukraine is also in position to kickstart its green hydrogen industry. Last summer Ukraine laid the groundwork for joining the European Union as a supplier of renewable energy and green hydrogen, and last September Andrew Forrest announced that he is personally banking on a green recovery for Ukraine.

In a press release issued by his family owned Tattarang Group, Forrest announced that he is providing $500 million in seed money for a new, $25 billion fund called the Ukraine Green Growth Initiative, with the support of President Zelenskyy and the government of Ukraine.

“This investment fund will focus on primary infrastructure such as energy and communications to build a digital green grid, so Ukraine can become a model for the world as a leading digital green economy,” Tattarang Group emphasized.

President Zelenskyy also indicated a focus on decarbonization, stating that Ukraine will “take advantage of the fact that what the Russians have destroyed can readily be replaced with the latest, most modern green and digital infrastructure.”

The BlackRock connection also surfaces in the new fund. Prior to setting it up, Forrest consulted with Larry Fink along with U.S. President Joe Biden and the leaders of the U.K. and Australia, as well as international organizations.

Who’s the ‘wokest’ of them all?

Forrest’s pitch for the new fund also included a ringing endorsement of ESG principles on a global, geopolitical scale.

“I invite professional investors, fund managers and sovereign funds and all who believe invading another country should now be forever consigned to the historical garbage bin of humanity’s worst mistakes, to join us,” he stated.

Forrest is far from alone. Russia’s murderous rampage through Ukraine sparked a massive, global corporate boycott against the country, propelled by a combination of reputational risk and international sanctions. 

Against this backdrop, the newly minted Republican majority in the U.S. House of Representatives is still moving forward with plans to hold hearings on “woke capitalism.” If they are aiming to expose anything, though, it will most likely be the fact that ESG investing is not only beneficial but inevitable. 

Image credit: Anastasiia Krutota via Unsplash