Top 5 Takeaways from BlackRock head Larry Fink

What the giant investment management firm is looking at in 2021: “The climate transition presents a historic investment opportunity.”

It has become an annual tradition. For years now, investment management company BlackRock’s CEO Larry Fink writes a letter an annual letter, aimed at other business leaders that is eagerly anticipated by investors, companies—and increasingly—the global sustainability movement.

Having worked in sustainability for more than 30 years, it’s an odd experience to hang on every word of one of the world’s top capitalists. But BlackRock has nearly $9 trillion under management, so its decisions have important implications for the markets, and for the companies in which it owns stock. And Fink’s letters have been pushing sustainability for several years.

This year’s letter—when paired with political shifts in Europe and the U.S.—will have an outsized impact. If demands from shareholders like BlackRock aren’t enough to move companies to improve on ESG (Environmental, Social and Governance) concerns, then the regulators will.

Of course, 2020 was a year unlike any in memory—and this year’s letter reflects the pandemic and its resultant economic distortions. But it’s clear from the start, that these unprecedented events only strengthened Fink’s resolve toward stakeholder capitalism. These five takeaways show why:

1: THE PANDEMIC DEMONSTRATED THE IMPORTANCE OF ESG

Sheer fatigue has led many of us to stop processing each day’s shocking headlines. Fink’s letter reflects on the craziness that was 2020 (and the start of 2021) and concludes that ESG issues are more relevant than ever, backing this with the eye-popping statistic of a 96% increase in sustainable investing since 2019.

This makes sense. As a veteran of the sustainability world, I have spent much of my career trying to justify the importance of ESG matters to corporate managers.  This was an uphill battle because ESG issues are always someone else’s problem—until the pandemic. Now it’s clear that changes in our environment can make or break corporations, with 2020’s obvious winners (anything online) and losers (anything face-to-face). In that sense, the pandemic ushered in a new way of thinking for companies: there are larger issues at play, from public health to climate to social justice, that will inevitably shape the way we do business.

But of course, the story is more nuanced, and Fink makes an elegant pivot to climate change as the existential threat that affects all. And he makes it very clear that BlackRock will hold companies accountable to act on climate change immediately.

2:NOW THAT WE KNOW HOW FRAGILE WE ARE, WE MUST ACT TO REMAIN UNDER 2 DEGREES

Fink’s pivot from pandemic to climate is worth repeating:

“The pandemic has presented such an existential crisis—such a stark reminder of our fragility—that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives.”

The fragility point resonates strongly. We live in times where the fundamentals of our society have been laid bare and it’s not hard to imagine living in a post-apocalyptic, science-fiction movie plot. Turning this fear into energy, Fink charges all companies to achieve “net zero” carbon emissions—emitting no more carbon than they remove—by 2050.

This is not some environmentally driven aspiration, as the letter asserts, companies ignoring this transition will lose confidence and lose value. This year’s letter is an urgent wakeup call (more of a warning) to corporate leaders to up their game—in both knowledge and technology—for managing carbon.

3: DATA MATTERS

Fink also calls for a single global disclosure standard for all companies. As the former CEO of GRI (the Global Reporting Initiative), it was hard to see him endorse other standards for disclosure of climate impacts. But, without question, we have no time for confusion and inefficiency in how we account for carbon impacts. We need to pick a lane and drive in it now.

The letter also exposes the fact that most companies, even sustainability leaders, do a poor job in accounting for their carbon emissions. Having worked in sustainability for some of the largest companies, I can attest that this is spot on.

To meet the expectations of the world’s largest asset manager, policymakers and our fellow humans, companies must measure carbon with the same rigor as their financials. What gets measured gets done—but as of today, we are far from good measurement of carbon.

4: DON’T FORGET THE “S” IN “ESG”

Climate change affects every aspect of life, which is why it’s the top priority. But, as the climate crises continues, or maybe because of this crisis, the importance of social issues is rising rapidly. The long battle for racial equality boiled over last summer and ignited a global outcry for action. Despite the recent historic election of our first minority female vice-president, racial and gender inequality is ramping across all facets of daily life.

Fink is clear that business holds the key to building inclusive capitalism. The challenge to corporate leaders is to deep deeper. Diversity and inclusion programs have morphed into “DEI” (Diversity, Equity and Inclusion) but not much else has changed. Companies need to take a hard look at how they can promote equality in the world, not just their workforce.

5: NET ZERO IS NET POSITIVE

BlackRock and other asset managers have one job: make money. This letter shows that the changes we are seeing in the world have moved from the sustainability activist space into the mainstream of global commerce.

And it’s not just a risk avoidance issue. Fink makes the point that “the climate transition presents a historic investment opportunity.”

Wise investors favor companies that can see around corners to minimize downside risks and maximize opportunities. The pandemic demonstrated how quickly a company’s fortunes can be drastically changed by external events. Fink is absolutely correct pointing to climate change as the external event that will impact all companies and to call on them to incorporate it into their business strategies—both to minimize the risk, but also to generate new business.