BlackRock, the Elephant and the Green

May 20, 2022

The week’s most dramatic  headline...

...elicited both favorable and contrary emotions toward BlackRock’s positioning.

Many have questioned its consistency in the face of the letter published by Larry Fink quite recently, while others considered it a recalibration given the limitations of the previous positioning.

It is a fact that many companies are committing to the minimum feasible levels in socio-environmental agendas to comply with the so-called SLO (Social License to Operate), while others are moving to the forefront exactly as vectors of competitive differentiation. There are also those caught up in green/social-washing, and others still skeptical of the actual reaches and ramifications.

In any case, the sentence "BIS notes that many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value" expresses the essence of the debate that arises in the face of the inflections of ESG agendas in the corporate context. It is a fact that, just like the compliance agenda, the sustainability agenda poses restrictive boundary conditions to companies’ free operation, given their negative externalities. It is equally reasonable to admit that, in a less restrictive environment, more volatility may be expected in the returns, with excellent opportunities to capture the value associated to the asymmetries related to such externalities.

As such, it seems to me the most important implicit aspect in BIS’s report lies in the realization that the sustainability agenda sets limits to the degrees of return on the invested capital and that, for now, BlackRock does not envision a sufficiently-coordinated institutional framework to ensure compliance with those limits. This creates disincentives for the companies pioneering in the adoption of more restrictive agendas compared to competitors operating more freely and in impunity, in the face of such asymmetries.

It is reasonable to imagine that someday we will live in a competitive environment committed to sustainability in its various dimensions. It is also reasonable to realize that some companies envision this scenario as highly likely and wish to anticipate as to capture the values that are intrinsic to the new paradigm. Nonetheless, it is equally reasonable to understand that the financial rationale of capital allocation aims mostly at maximizing binomial risk-return within a given timeframe.

Therefore, this is about an assessment of the probabilities of a shift in paradigms, combined with probable timeframes for such shifts. BlackRock is a capital investment manager. It may commit to vanguard agendas, influencing the economic agents, as long as it pictures there is a chance the new paradigm will materialize. Yet, it must also commit to its core principle: to maximize the risk-return for its investing clients on liquid assets, quickly transferred to other managers if they perform disappointingly. Adopting a more selective posture seems to have been the balance found in the face of the latent dilemma.

The private sector conforms to the institutional framework that presents itself. And the whole institutional framework is greatly influenced by how the government acts. Believing the private sector will enforce significant restrictions regardless of legal and regulatory codes might be putting too much faith in humanity’s altruistic nature. The economic trajectory over centuries and centuries presents us a different context: some pioneers anticipate revolutionary trends against everything and everyone, society eventually and gradually pushes for few new agendas, companies watch and carefully adapt to the shift, and governments finally institutionalize what everyone already expected.

As the socio-environmental agenda has first-rate relevance to society, not only will the private sector push it to the idealized level. It is a necessarily public agenda: both for society at large, as in the governmental agenda. The agents in the capital markets will certainly know to read the signs of the intensity, breadth and seasonality, but hardly will they stand for agendas with uncertain and ambiguous results.


Daniel Augusto Motta é Managing Partner e CEO da BMI Blue Management Institute. Doutor em Economia pela USP, Mestre em Economia pela FGV-EAESP e Bacharel em Economia pela USP. É Alumni OPM Harvard Business School. Atua também como Managing Partner da corporate venture capital WhiteFox sediada em San Francisco (EUA), como Senior Tupinambá Maverick na content tech Bossa.etc e com Membro do Conselho de Administração da Afferolab. Também atua como Diretor de Planejamento Estratégico da UNIBES e Membro do Conselho Deliberativo do MASP. Foi Membro-Fundador da Sociedade Brasileira de Finanças. Foi Professor nos MBAs da Fundação Dom Cabral, Insper, FGV, ESPM e PUC-SP. É autor de diversos artigos publicados por Valor Econômico, EXAME, VocêSA e Folha de São Paulo, e também tem três artigos publicados pela Harvard Business Review Brasil. É autor dos livros best-sellers A Liderança Essencial, Anthesis e Data Insights.