Stockholm (NordSIP) – In this year’s Letter to the CEO, BlackRock’s CEO Larry Fink reiterated his endorsement of the value of sustainability and ESG integration in asset management. However, no further commitments were made. The most notable aspect of the letter was a push back against idealism by Fink who argued that sustainable investments are motivated by their long-term returns.
“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 said to the CEOs (emphasis added). “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” he continued.
Ignore Workers at Your Peril
In that spirit, the CEO went on to argue that companies should focus on their workers and address their concerns. Once again, the focus was not on companies acting out of the kindness of their heart but rather based on good business practices.
“As companies rebuild themselves coming out of the pandemic, CEOs face a profoundly different paradigm than we are used to. Companies expected workers to come to the office five days a week. Mental health was rarely discussed in the workplace. And wages for those on low and middle incomes barely grew. That world is gone” Fink warned.
“Workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees – actions that will help them achieve greater profits for their shareholders. Companies that deliver are reaping the rewards. Our research shows that companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic. Companies not adjusting to this new reality and responding to their workers do so at their own peril,” Fink argued. (emphasis own)
Staying the Course
There were no further commitments regarding climate change this year. In the 2021 annual letter to CEOs of investee companies, after years of criticism for its lack of vision on the crucial role of ESG, Fink finally endorsed the rising global commitment to net-zero CO2 emissions by 2050.
“The world is moving to net-zero, and BlackRock believes that our clients are best served by being at the forefront of that transition. We are carbon neutral today in our own operations and are committed to supporting the goal of net-zero greenhouse gas emissions by 2050 or sooner,” Fink told the CEOs of BlackRock investee companies. “No company can easily plan over thirty years, but we believe all companies – including BlackRock – must begin to address the transition to net-zero today. We are taking a number of steps to help investors prepare their portfolios for a net-zero world, including capturing opportunities created by the net-zero transition,” the CEO added in 2021.
In 2022, the message was one of following the tracks laid last year. “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,” Fink said.
The focus was on companies taking responsibility for disrupting their industry and moving the agenda forward. “Our question to these companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?” Fink asked
Indeed, the CEO made it very clear BlackRock is not interested in taking further steps at the moment. “Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. And BlackRock does not pursue divestment from oil and gas companies as a policy,” Fink stated. (emphasis own)
In a sense, the lack of a more powerful endorsement of sustainable investments and the integration of ESG on the part of BlackRock should not be surprising. As the world’s largest private-sector asset management, with over US$ 9 trillion in assets under management, it can hardly afford to dedicate itself entirely to sustainable, let alone impact investments. The assets just aren’t there yet.