Self-fulfilling prophecy: The Big Three's strategy for capital preservation
BlackRock, Vanguard, and State Street make up the so-called "Big Three". Together, they hold strategically significant stakes in the world's largest transnational corporations. Their portfolios include giants in the industrial, energy, transportation, pharmaceutical, food, information, and technology markets. Each company invests huge financial resources in charitable foundations, awarding grants to "high-impact nonprofit organizations" in the fields of education, culture, ecology, and green economy. The companies' chief executives regularly find themselves caught up in scandals. BlackRock CEO Larry Fink believes that access to capital is a privilege, not a right. Not so long ago, their offices in Paris were stormed by opponents of pension reform. The U.S. Republican presidential candidate Vivek Ramaswamy refers to the "Big Three" as the most powerful cartel in human history.
Inventing the Big Three
The 1980s in the world economy were characterized primarily by slow growth rates in most developed countries and slow capital accumulation by large industrial giants. In 1986, world output grew by only 3%, compared with 3.4% in 1985 and 4.5% in 1984. World GDP per capita increased by about 1%, which was half the average rate achieved in the 1970s and three times less than in the 1960s.
In 1988, the BlackRock management company emerged on the investment market. Its main principle was putting the interests of its clients at the core of all its operations. Since the financial crisis of 2008, private as well as institutional investors have massively transferred their capital from expensive, actively managed mutual funds to cheap "passive index funds". According to analysts, besides BlackRock, the latter also include Vanguard and State Street. Unlike active investing, passive funds do not seek to buy stocks and make money for their clients; they seek to preserve capital through continuous monitoring and tracking of markets.
The years of the global financial crisis (2008 -2015) were characterized by an unprecedented change in investment behavior: investors began to actively sell their stock in actively managed funds and entrust their capital to passive investment funds, transferring an estimated $1 trillion to them in hopes of keeping their money. In recent years, BlackRock, Vanguard, and State Street have all acquired significant stakes in thousands of publicly listed corporations, both in the United States and abroad. The growth of passive index funds has led to a marked concentration of corporate ownership in the hands of the "Big Three". At the same time, the capital mobility that these firms have facilitated by moving investor money outside their jurisdictions has increased the pressure on governments. Their goal has become to develop policies that would attract more investment.
The influence of the "Big Three" has the character of a self-fulfilling prophecy, when the very fact of prediction influences reality and makes it possible. The managers of the "Big Three" retain the world's largest capital by investing it in countries with a comfortable investment climate. It is worth mentioning that the favorability of the country's investment climate is determined by the "Big Three's" analysts. Thus, among the serious global risks, BlackRock Chairman Thomas Donilon names the pursuit of self-sufficiency in the energy, food, and technology fields. On the contrary, diversity and a green economy based on alternative energy sources are perceived as advanced cultural and technological norms.
Good intentions stand guard over world order
BlackRock, Vanguard, and State Street manage the assets of Amazon, Apple, Microsoft, Google, Alphabet, Nvidia, Tesla, Johnson & Johnson, JPMorganChase, Visa, Mastercard, Pfizer, and many other transnational corporations. In addition to financial analysis, all three companies abide by the ESG strategy, which takes into account environmental, social, and governance factors. Financial managers calculate the risks that may affect the outcome of their investments, paying particular attention to climate change and racial diversity on the company's board of directors. Thus, the entire philanthropic mission is focused on an inclusive transition to a low-carbon future and implementation of employee engagement programs that can serve as agents of social change. In addition, BlackRock, for example, acts as a public policy and private sector advisor to governments in the field of industry standards.
In 2021, the non-governmental research and campaigning organization Reclaim Finance published a report accusing BlackRock of lobbying its interests in the preparation of the European Union's Updated Sustainable Finance Strategy. The company promoted its interests through a network of public organizations consisting of at least 23 trade associations and analytical centers. Since the beginning of 2019, they have held at least 92 meetings with senior management of the European Commission, including 24 on topics related to sustainable finance.
These organizations, including analytical center Bruegel and non-profit platforms Eurofi and EPFSF, declared annual lobbying expenditures of between €28.3 million and €31.9 million.
BlackRock, despite its "green" rhetoric, is the second largest investor in coal companies in the world. With the interests of its clients in mind, its management lobbied for an EU climate strategy based on voluntary mechanisms rather than strict regulation.
Meanwhile, in the United States, Republicans hold BlackRock responsible for the rise in inflation and gasoline prices. Consumers' Research published a report in 2022 in which CEO Larry Fink was accused of waging a war on America's energy companies in order to promote a climate program that damaged American energy production. BlackRock has also exploited its position as a major shareholder in U.S. oil companies to promote a left-wing ideological agenda aimed at curbing domestic oil production. This has led to higher energy prices, inflation, weakening of energy infrastructure, liquidation of fossil fuel companies, job losses (primarily blue-collar jobs), and undermining of national security. In response, BlackRock launched an advertising campaign and hired additional lobbyists in Texas and Washington, D.C., where bills were prepared to restrict its business operations and limit the voting rights of large asset managers at shareholder meetings.
The Vanguard Charitable program offers three stock options that allow donors to invest in a range of companies that adhere to a particular set of social values. For example, they only allow investments in companies that abide by left-wing environmental principles and prohibit investments in companies connected to nuclear power or those that own fossil fuel reserves. However, in 2019, Vanguard Charitable became a target of criticism from left-wing political forces, facing accusations of funding "hate groups," including the right-wing Ku Klux Klan. Between 2013 and 2017, Vanguard transferred $167,000 to groups involved in lobbying for abortion restrictions in the United States, which caused a negative response from members of the liberal community.
State Street also acts in the interests of its shareholders through the Regulation, Industry, and Government Affairs division (RIGA). It is responsible for monitoring policy, legislative, and regulatory reforms around the world and involving regulatory authorities and politicians in solving the issues that have arisen either directly or through trade organizations and outside consultants. The company's philanthropic mission fits within the framework of the ESG strategy, and the lack of ethnic and racial diversity within the firm, in addition to climate change, is considered a serious investment risk.
In 2021, it was reported that State Street changed its hiring practices and now required special permission before hiring white males as executives. The company also announced that every year it will be giving away 20% of its fees from managing left-wing human rights and charitable organizations that align with the values of "racial equality and social justice". Within the framework of the charitable mission, $5 million has already been allocated to launch a fund of the same name.
However, State Street has also been caught up in several scandals connected to combating climate change. Its funds positioned themselves as fossil fuel-free while owning shares in oil refineries.
Counterbalancing the "green and ethical" strategy
The ESG strategy promoted by the "Big Three" has often been criticized in recent years, especially by right-wing forces. In fact, the companies, engaged in constant monitoring of markets and risks, play a double game: on the one hand, protecting the interests of their shareholders in the petrochemical industry, and on the other hand, limiting the development of this industry in unfriendly companies, which they mask under their green agenda. Branding funds as "green" or "ethical" allows them to capitalize on huge waves of investors and better justify the fees they charge for stock selection. In addition, a significant amount of funds comes not from professional investors but from ordinary people who want to invest their retirement savings resourcefully.
Consultants keep their finger on the pulse of global politics, supporting foundations and charitable causes based on the current situation on the market. Thus, Vanguard can simultaneously support both supporters and opponents of abortion, promote leftist ideas, while sponsoring right-wing organizations. Thus, the management is not interested in the phenomenon as such; what they deem more important is the ensuing political effect of their investments.
In the United States, supporters of the Republican Party are trying to counter the lobbying interests of the "Big Three" by legislating against the ESG strategy. However, they are being opposed by a huge propaganda machine run by BlackRock and Co., represented by the leading media and the entertainment industry, which widely promote green investment alongside inclusivity and racial diversity. Ultimately, this confrontation is perceived not as an economic battle against global capital but as an ideological confrontation between the patriarchal right and the environmentalist and social justice-minded left. The image of responsible investors concerned about climate change and sustainable economic development actually conceals the self-interest of these investors, who are willing to sacrifice their so-called "ideals" for profit. But only when it is really profitable, as with the EU's Updated Sustainable Finance Strategy.
CEO Larry Fink stated in his recent letter to shareholders that access to the capital markets is a privilege, not a right. This means that financial resources that could have been invested in truly impactful technologies are being unjustly redistributed in order to drive companies that do not correlate with the interests of the "Big Three" out of the market. The only effective mechanism for resisting this financial dictate, as both industry analysts and Republican supporters point out, is the creation of a new investment mechanism that would prohibit non-professional investors from making "responsible" but politicized investments. Private capital in the form of retirement savings should be invested in funds that promise maximum returns, not global prosperity.