The Limits of Privatized Climate Policy

The Limits of Privatized Climate Policy

We cannot make the most urgent infrastructural investments of our lifetimes with gentle signals to financial markets. The clearest path forward is to embrace the capacity of the state.

Chairman and CEO of BlackRock Larry Fink (L) leaves a meeting about climate investments with heads of sovereign wealth funds in Paris on July 10, 2019 (Ludovic Marin/AFP via Getty Images)

For many in the climate movement, Donald Trump’s defeat in 2020 was a moment of euphoric optimism. With Joe Biden in charge, we could look forward to a possible return to climate action and diplomacy. No longer would policy be shaped by denialists, politicians proudly in Exxon’s back pocket, and a media fixated on the “costs” of public investment. A year on, it’s become easier to see the limits of the Biden administration’s approach, and how little has really changed.

There have been moments of genuine ambition from the Oval Office. The clean electricity pledges of the fall 2021 budget package and the climate-related investment promised in early versions of the Infrastructure Investment and Jobs Act were among the most significant climate commitments we’ve seen from the U.S. government (hence the staunch resistance to their passage from Exxon’s man on Capitol Hill, Joe Manchin). On the other hand, even before the numbers were pared down by a handful of intransigent senators, climate advocates rightfully argued that the level of investment was totally inadequate to meet the scale of the challenge.

The quantity of investment is not the only problem. Spending more money, however necessary, is not enough to address the crisis. The break with the status quo that we need is also distinctly qualitative. The bipartisan infrastructure bill is peppered with public investments in infrastructure that are conditioned on enormous private-sector returns, including the use of asset recycling (selling off existing public infrastructure assets to private actors to fund the construction of new ones), public-private partnerships (socializing the risk and privatizing the profits from joint ventures), and private activity bonds (a special class of tax-exempt bonds that governments issue on behalf of private actors). These policies, which exacerbate the inequality that drives climate and environmental degradation, should be a nonstarter.

Skeptics might reasonably ask whether there is a problem with encouraging the private sector to play a role in building a decarbonized economy. In theory, private entities using their capital to invest in green initiatives isn’t inherently bad; indeed, it’s far preferable to continuing to invest in fossil-fuel-guzzling assets or the mass production of disposable consumer goods.

There are two problems with this approach, however. First is the numbers game: indirectly encouraging infrastructure investment might bring some otherwise reluctant private investors to climate-related projects, but in all likelihood that effect will be marginal. The infrastructure of the green economy is hardly high risk; indeed, as governments (and the reality of deepening climate crisis) continue to signal that the only future is a decarbonized one, there is a substantial degree of certainty for investors about how the future will look, and which “historic investment opportunities” (as BlackRock CEO Larry Fink put it) are likely to be a part of it. The private-investor inducements favored by the Biden administration are thus best understood as mechanisms for using public spending power to transfer the gains from infrastructure assets that would otherwise have sat on the public balance sheet and been under democratic purview to private interests and authority.

The case could be made that there is no time to waste haggling with capital over who will reap the financial gains of climate investment, we should accept that in the process of mobilizing investment, some firms and individuals might profit enormously. Herein lies the second and perhaps more profound problem with a plan for climate investment steered by Wall Street. Decarbonization is not an abstract, disembodied process. At every stage, green infrastructure development will come up against the material constraints of resource throughput and labor and have significant effects on the environment. Resolving our overlapping crises on a global scale is fundamentally a question of inequalities of wealth, power, energy and resource consumption, and waste. Reducing these inequalities is not just an add-on to climate policy but a physical imperative.

Hitting the brakes on the growth of many sectors of high-income economies and radically redistributing how wealth is accumulated and used are not goals that align with asset managers’ immediate interests. The drive toward aggregate asset price growth and the escalating accumulation that sustains the industry is incompatible with the decommodification of significant swathes of the economy, such as health and social care, energy, and other basic needs. However, neither is it compatible with an economically turbulent transition to a decarbonized world. While some vulture funds and speculators might profit from the rapid decline of fossil-fuel assets, general asset managers cannot; they are acutely concerned with preventing the financial risks of catastrophic climate change, but only so long as the path to decarbonization aligns with their interests.


To understand these interests, it’s helpful to examine the business model of the world’s largest asset management firm: BlackRock.

The company, which has nearly $10 trillion in assets under its management, maintains close ties with the White House. After he was courted by Hillary Clinton during her bid for the presidency in 2016, Larry Fink wasted no time building what some have called a “shadow treasury” of influence in the highest offices of government. A number of prominent advisers and strategists have moved between BlackRock’s offices and the White House. Brian Deese, the director of Biden’s National Economic Council, was formerly Global Head of Sustainable Investing at BlackRock, and a senior adviser to President Obama before that. Vice President Kamala Harris’s chief economic adviser Mike Pyle, meanwhile, was plucked from the helm of BlackRock’s global investment strategy team. Biden also selected Adewale “Wally” Adeyemo, formerly Fink’s chief of staff, as Deputy Secretary of the Treasury. The firm was also brought in to advise the Trump administration on managing the pandemic’s economic impact, and it was given the task of carrying out the Federal Reserve’s crisis-response corporate bond purchase program, allowing it to buy up many of its own funds in the process. The extent of its influence over the past few administrations led Bloomberg to describe BlackRock as “the fourth branch of government.”

Where do we most see the effects of that influence? To answer, we need to examine the historically unprecedented arrangement of ownership in the global economy represented by the rise of BlackRock (along with a number of similarly enormous peers such as Vanguard, State Street, and Fidelity): asset manager capitalism.

BlackRock is a fee-based intermediary, meaning its revenues grow in direct proportion to the size pool of assets under its control. Unlike earlier fund managers, BlackRock is a “strong” investor, with stakes large enough to substantially influence the companies in which it invests. And like its peers, BlackRock is a “universal” owner, with investments throughout the entire global economy and in every asset class.

As political scientist Benjamin Braun, who coined the term asset manager capitalism, argues, the outcome of this historically novel business arrangement is that the performance of any individual company (indeed, any individual industry) is not important for BlackRock; its only concern is aggregate asset price growth, achieved through perpetually scaling up the size and value of the asset pool it manages and securing new opportunities for investment.

The implications of this model extend beyond the operations of BlackRock itself. Consider the design of the infrastructure bill. Amid the furor surrounding Manchin’s crude efforts to leverage his vote to lower the scale of investment in the fall budget bill, many journalists neglected to cover the nature of the investment promised by the legislation. The bill, like the European Union’s Green Deal and the private finance agenda adopted during the COP26 negotiations, is a bonanza of secure income streams for private investors from publicly backed assets. It is a textbook case of what Daniela Gabor has termed the Wall Street Consensus: rather than taking a direct role in funding and managing public investments, states leverage private capital through financial mechanisms like securitizing undesirable loan opportunities into complex instruments. Governments “de-risk” these investments, with no expectation of a commensurate return for their role.

The trouble with this model, as Gabor has documented, is that there is no guarantee it will provide infrastructure or public services that actually meet the needs at hand. Wall Street Consensus methods are typically more costly to the public and less effective at meeting stated objectives, and they lead to a more unfair distribution of benefits. The relative ease with which investors are able to withdraw their money also leaves communities vulnerable to capital flight, with the state once again left to pick up the tab.

Increasingly, private finance also gets to set the terms of its own operations, determining what counts as green, sustainable, or socially beneficial. BlackRock was, for example, asked to consult on the European Union’s sustainable finance legislation, while private ratings agencies, investment advisers, and index providers like MSCI and S&P enable firms to shop for the label or designation that best suits their needs. The demand for convenient, rather than meaningful, designations for investment products has led to a situation where, according to an OECD analysis, there is no correlation among the ESG (environmental, social, and governance) ratings offered by top financial data providers like Bloomberg, MSCI, and Refinitiv.

At the G20 Infrastructure Investors Dialogue last June, Fink told his audience that “Our biggest difficulty is not capital. Our biggest difficulty is finding the appropriate investments.” Today, finance is both abundant and cheap but there is a lack of investment opportunities that are both high-yielding and relatively certain to bring a return. For asset managers, the invitation to put trillions of dollars into state-backed climate and infrastructure plans is the perfect solution.

Financial markets are supposed to efficiently allocate resources. But what is efficient might have no overlap with what is most effective, particularly when our goals, like replenishing carbon-rich ecosystems, aren’t profitable in the near-term. Nor is efficiency likely to have any strong relationship to overhauling our economy in a way that is just and drastically curtails inequality—essential components of any new economic consensus that hopes to be durable.


Not all climate policy is good climate policy. The decarbonization of the United States could have egalitarian consequences, but it could also generate catastrophe not only for the world beyond its borders but also for the poor within them. A massive expansion of the electric vehicle fleet to service demands for private and luxury modes of transport, for instance, would have devastating consequences for the water tables of communities in Latin America that supply the lithium needed to manufacture car batteries. It would also fail to make inner cities more livable under extreme temperature conditions, reduce urban sprawl, or increase access to green space and affordable transportation. Similarly, wealthy nations could adapt to a climate stabilized at a temperature that makes swathes of the planet unlivable, leading to enormous migrations of people who are met with hostility at the borders of the United States and Fortress Europe.

Our existing systems must be replaced, but with what? Replacing our fossil-fuel-gobbling infrastructure one-for-one with solar and wind powered alternatives is an impossibility at a global scale. It would represent an indefensible failure to reckon with the enormous injustices, inequalities, and democratic deficits that plague our societies. But it is also materially unfeasible. Substantially redistributing wealth and consumption, both within countries and, crucially, between them, is imperative if we are to secure a livable future. For similar reasons, we can’t offset our way to climatic stability; even if carbon offsets were effective at mitigating emissions (a vast majority are not), the land demands are utterly divorced from reality. Shell’s much-vaunted “nature-based solutions” offsetting plan would require planting 12 million hectares of forests by 2030—nearly three times the size of the Netherlands—and that’s just to meet the demands of a single firm’s emissions over less than a decade. We cannot meet the most urgent infrastructural investments of our lifetimes with nudges and gentle signals to financial markets. The clearest path forward is to embrace the capacity of the state.

In the near term, expansive public investment packages may be plagued by the obstinacy of figures like Manchin and Kyrsten Sinema. They opposed the legislation despite the fact that it was designed in the image of the Wall Street Consensus; evidently, shaping policy around the interests of private investors is not enough to appease them, so there’s little reason to accept the current model as a necessary compromise to achieve large-scale funding for climate projects. In the meantime, there are other avenues by which the state can direct resources to the projects that will deliver the climate investments we need, and to do so as fairly as possible.

As political economist Max Krahé has argued, leaving the work of rating what is “sustainable” to the private sector has proven a resolute failure; the criteria are currently based on optimizing investors’ risk exposure, not their material impacts. In the Financial Times, Krahé outlined how the U.S. government could embrace its capacity as a planning body to set more stringent criteria for sustainable investment, based in principles of efficacy, justice, social impact, and more. An independent public ratings agency could help transcend the muddy conflicts of interest and opacity of the private ratings sector.

Short of breaking with capitalism, proposals like this one can diminish the power of private finance to shape the politics of decarbonization. They could begin to set in motion a more fundamental revolt against the primacy of the market and financial titans in setting the terms of our future.

Adrienne Buller is a Senior Fellow at the Common Wealth think tank. She is the author of the forthcoming books Owning the Future: Power and Property in an Age of Crisis and The Value of a Whale: On the Illusions of Green Capitalism (both 2022).