The past weeks have been turbulent times for global stock markets. Russia’s war in Ukraine caused global energy and food crises on top of the horror it brought to the Ukrainian people. The war and the COVID-19 crisis have disrupted global supply chains, significantly affecting the production of high-tech goods. To curb rising inflation, central banks have returned to hiking interest rates – even though it is unclear how these changes are supposed to cool off the simultaneous supply shocks – feeding to growing concern on the outlook of economic growth across the globe. These developments have led to a sell-off that has significantly hit global stock markets.
However, the impacts of the recent crash are unevenly distributed. While the Dow Jones Industrial Average has lost around 5% of its market value over the past month, the Nasdaq Composite Index representing mostly tech shares has lost around 12% of its value over the same period. At the same time, rising energy prices have led to skyrocketing revenues of fossil fuel firms that have significantly bolstered their market capitalisation. ExxonMobil is a case in point here, with its shares gaining over 35% in the past six months. As the Financial Times reported, oil giant Saudi Aramco has just taken over Apple as the world’s most valuable corporation for the first time since 2020.
This shift in asset values from tech to fossil fuels is bad news for the climate. The need to quickly reduce dependencies from Russian oil and gas is already leading to a boom in fossil fuel exploration and investment that may lock-in carbon trajectories. But the situation is even worse when also taking into account the corporate politics of today’s financialised capitalism. As political economist Benjamin Braun has recently argued, we are living in an age of asset manager capitalism, where a significant part of global stocks worth tens of trillions of dollars is currently held by the big three asset management firms BlackRock, Vanguard and State Street. With asset managers becoming new “universal owners”, their importance for global corporate governance can hardly be overstated.
The way how asset managers earn money is of crucial importance for the impact of the current tech crash on corporate climate policies. Asset managers’ principal source of income is management fees that are charged as a fixed percentage of the managed assets. Asset managers therefore have two principal avenues to increase their income. The first way is to attract new business in competition with other asset managers. The second way is to benefit indirectly from rising stock markets, as fixed percentages correspond to higher fees when the overall asset base increases.
The important thing to note is that the recent stock market dynamics have led to a significantly higher dependency of asset manager revenues on fossil fuel firms. The sell-off has lowered the value of tech firms in asset management portfolios, while the fossil fuel boom has led to a corresponding increase. As a result, asset manager revenues are now significantly more dependent on the market value of fossil fuel firms than they have been a year ago. This means that any threat to the share price of fossil fuel firms – for example by having to write off oil reserves that are incompatible with avoiding disastrous climate change (so-called stranded assets) – will directly impact a large and growing share of asset manager revenues.
Asset managers are already responding to these developments by rolling back their ESG voting policies. The world’s largest asset manager, Blackrock, announced last week that it will be more critical to shareholder resolutions aimed at a rapid decarbonisation. This is in stark contrast to a statement of Blackrock CEO Larry Fink who wrote as late as this January that “climate risk is investment risk.” Although Blackrock said that the main reason for their U-turn was the need for new fossil fuel investment following the war in Ukraine, following the money paints a different picture. From the perspective of asset managers, the recent change in asset values has translated greening from a minor source of expenses justified by the hope for new mandates into a major threat of corporate revenues. If fossil fuel shares are the only source of stable asset values, forcing them to decarbonisation through voting will affect both, Blackrock’s promise to profitably manage client’s assets as well as their current revenue base.
For political economy, this case shows the importance of studying in detail the value models of financial market actors. What makes asset-value politics unique is that they are neither driven by the pursuit of returns on investment, nor by speculation per se. As universal owners, exit is not an option to asset managers, making voice their only option. This is the reason why large asset managers are keen to manage not just asset allocation for their clients but become the legal owners of their clients’ shares. But it also shows that asset managers have a vested interest to sustain asset values that may be larger than their clients’ wishes for decarbonisation, or even the redistribution of corporate profits. Asset-value politics is thus a prime example of a toxic fusion between the organised reality of financial capitalism and the emerging asset economy.
The current stock market crisis also foregrounds the latent problem of tasking financial markets with climate politics. As Blackrock’s asset-value politics shows, even minor commitments to greening the economy rapidly end as soon as they pose a threat to the profits of financial intermediaries. While a greening of the financial system is laudable and important, the current crisis lays bare the utter insufficiency of financial markets as a greening mechanism. As many others have argued, there is only one way out of this crisis: drastically increasing regulation and public investment to green our economies, combined with smart central planning. If we are to avoid a deadly climate crisis quickly nearing the critical 1.5C threshold, we urgently need to take politics away from asset managers and put it back in the hands of governments.