BlackRock CEO asks companies to disclose climate change plans

Amid all of the disruption of Covid-19 and the subsequent lockdowns in 2020, businesses moved forcefully to confront climate risk. That’s according to BlackRock’s CEO Larry Fink.  Writing in his annual letter to CEOs around the world, Fink says the conventional wisdom was that the pandemic would divert attention from climate change concerns – but just the opposite took place, and the reallocation of capital accelerated even faster than he anticipated.

“I believe that 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. It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.

“In the past year, people have seen the mounting physical toll of climate change in fires, droughts, flooding and hurricanes. They have begun to see the direct financial impact as energy companies take billions in climate-related write-downs on stranded assets and regulators focus on climate risk in the global financial system. No issue ranks higher than climate change on our clients’ lists of priorities. They ask us about it nearly every day.”

From January through November 2020, investors in mutual funds and ETFs invested $288bn globally in sustainable assets, a 96% increase over the whole of 2019. “I believe that this is the beginning of a long but rapidly accelerating transition – one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”

Fink believes there is no company whose business model won’t be profoundly affected by the transition to a net zero economy – one that emits no more carbon dioxide than it removes from the atmosphere by 2050, the scientifically-established threshold necessary to keep global warming well below 2ºC.

“As the transition accelerates, companies with a well-articulated long-term strategy, and a clear plan to address the transition to net zero, will distinguish themselves with their stakeholders – with customers, policymakers, employees and shareholders – by inspiring confidence that they can navigate this global transformation. But companies that are not quickly preparing themselves will see their businesses and valuations suffer, as these same stakeholders lose confidence that those companies can adapt their business models to the dramatic changes that are coming.” 

However, assessing sustainability risks requires that investors have access to consistent, high-quality, and material public information.

“This is why last year, we asked all companies to report in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB), which covers a broader set of material sustainability factors. We are greatly encouraged by the progress we have seen over the past year – a 363% increase in SASB disclosures and more than 1,700 organizations expressing support for the TCFD.”  

Fink is now asking companies to disclose a plan for how their business model will be compatible with a net zero economy – that is, one where global warming is limited to well below 2ºC, consistent with a global aspiration of net zero greenhouse gas emissions by 2050.  He acknowledges that disclosure can be cumbersome, and that the variety of reporting frameworks creates further complexity for companies. 

“We strongly support moving to a single global standard, which will enable investors to make more informed decisions about how to achieve durable long-term returns. Because better sustainability disclosures are in companies’ as well as investors’ own interests, I urge companies to move quickly to issue them rather than waiting for regulators to impose them.”

BlackRock, Fink adds, is carbon neutral today in its own operations and is committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. “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.”

Fink says that over the course of last year, purposeful companies, with better environmental, social, and governance (ESG) profiles, have outperformed their peers. “During 2020, 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks. This outperformance was even more pronounced during the first quarter downturn, another instance of sustainable funds’ resilience that we have seen in prior downturns.^”

Being connected to stakeholders – establishing trust with them and acting with purpose – enables a company to understand and respond to the changes happening in the world. “Companies ignore stakeholders at their peril – companies that do not earn this trust will find it harder and harder to attract customers and talent, especially as young people increasingly expect companies to reflect their values.” Fink believes that the more a company can show its purpose in delivering value to its customers, its employees, and its communities, the better able it will be to compete and deliver long-term, durable profits for shareholders.

He adds that he is an optimist as he has already seen how many companies are embracing the demands of greater transparency, greater accountability to stakeholders, and better preparation for climate change. “I am encouraged by what I have seen from businesses. And now, business leaders and boards will need to show great courage and commitment to their stakeholders. We need to move even faster – to create more jobs, more prosperity, and more inclusivity. I have great confidence in the ability of businesses to help move us out of this crisis and build a more inclusive capitalism.”

Turning to the current pandemic, he states that multiple companies across the globe are delivering vaccines that they developed in under a year, when before 2020 vaccines typically had taken 10 to 15 years to develop.

“They are demonstrating the power of companies – the power of capitalism – to respond to human needs. As we move forward from the pandemic, facing tremendous economic pain and inequality, we need companies to embrace a form of capitalism that recognizes and serves all their stakeholders.” 

The vaccine is a first step and the world will remain in crisis for some time, Fink adds. “We face a great challenge ahead. The companies that embrace this challenge – that seek to build long-term value for their stakeholders – will help deliver long-term returns to shareholders and build a brighter and more prosperous future for the world.”