Two years on from when BlackRock’s Larry Fink wrote to businesses to warn them that “climate risk is investment risk”, the chief executive’s annual letter has been published today (18 January) to suggest how businesses can embrace stakeholder capitalism as a “catalyst for change”.
The letter, sent to the chief executive of companies in which BlackRock invests on behalf of its clients notes that businesses are facing unparalleled disruption due to the coronavirus pandemic and climate crisis. In response, businesses must reexamine how they treat their employees and what role they will play in society as a purpose-driven organisation.
Fink states that these themes are “vital to driving durable long-term returns” and that purpose should act as a company’s “north star” as they embrace new disruptions.
“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism,” Fink states in the letter.
“It’s been two years since I wrote that climate risk is investment risk. And in that short period, we have seen a tectonic shift of capital. Sustainable investments have now reached $4trn. Actions and ambitions towards decarbonization have also increased. This is just the beginning – the tectonic shift towards sustainable investing is still accelerating. Whether it is capital being deployed into new ventures focused on energy innovation, or capital transferring from traditional indexes into more customised portfolios and products, we will see more money in motion.
“Every company and every industry will be transformed by the transition to a net-zero world. The question is, will you lead, or will you be led?”
Workforce and net-zero
In the letter, Fink states that employees are now looking for more from their employers as national lockdowns have opened up new ways of working for some organisations. The letter states that “companies that create better, more innovative environments for workers are seeing lower levels of turnover and higher returns”.
Fink also stated that every industry will “be transformed by the transition to a net-zero world” with new start-ups and existing incumbents all capable of disrupting markets.
“The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonise and make the energy transition affordable for all consumers,” Fink added.
Fink also confirmed that BlackRock will launch a Center for Stakeholder Capitalism to explore how companies can perform better if they are “deliberate about their role in society and act in the interests of their employees, customers, communities and their shareholders”.
BlackRock has warned that high-level directors could be voted out of companies that are failing to act on climate risks posed to individual firms. BlackRock has historically faced criticism over its handling of the sustainability performance of the firms it invests in.
BlackRock, now a member of Climate Action 100+, secured more than $250m from global investors and governments to support clean energy uptake and climate infrastructure across countries in Asia, Latin America and Africa. The funds are for the Climate Finance Partnership (CFP), which was introduced at the One Planet Summit in September 2018 under the leadership of French President Emmanuel Macron.
In April last year, BlackRock unveiled two new temperature-based exchange funds aimed at helping investors align portfolios with the pathways of the Paris Agreement. At the time the investor confirmed that it was managing more than $200bn in long-term sustainable strategies, more than double what was recorded at the end of March 2020.
Matt Mace