BlackRock’s CEO is good at getting people’s attention. That opens the door for committed responsible investors to deliver their message

by David Rutherford

Every January, the New Year is kicked off with another ‘thou shalt’ moment from Larry Fink, the CEO of BlackRock, the world’s largest asset manager. This year, Fink’s annual letter to CEOs again riffed on the theme he started in 2018: companies need to have a distinct social purpose beyond merely profits and shareholder value.

As it was last year, the primary focus of Fink’s 2021 letter is on the need for companies to tackle the climate crisis. “No issue ranks higher than climate change on our clients’ lists of priorities,” he says, adding, “They ask us about it nearly every day.” Fink goes on to explain:

“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.”

This is exactly what we at NEI have been saying for years — both publicly and in our engagements with the companies in our funds. The risk to companies that fail to address the impact of climate change in their businesses, and fail to join the effort to mitigate the climate crisis is extraordinarily high. Enough, as Fink points out, to render a business that chooses to stand pat both abhorrent and irrelevant. Hardly a recipe for long-term profitability.

When Larry talks….

The difference, to paraphrase the legendary EF Hutton TV ads from the 70s, is that ‘when Larry Fink talks, people listen.’  How else to explain the extensive coverage of his statement? See exhibit A, BlackRock Chief Pushes a Big New Climate Goal for the Corporate World, in the New York Times. Fink has clearly watched Warren Buffett closely and realizes he can get the kind of mileage out of his annual letter to CEOs that Buffett has gotten from his annual message to Berkshire Hathaway shareholders.

But do Fink’s pronouncements amount to anything more than marketing? While many fervently believe they do not, there is nonetheless a case to be made in favour of Fink’s annual letter. Larry Fink’s pronouncements on climate change provide valuable and much-needed air cover for the legitimacy of responsible investing.

I know that can be hard for some in the industry to swallow. As the world’s largest asset manager, BlackRock has taken a lot of justified heat for its inaction on climate change. For instance, a Morningstar investigation of 2020 proxy voting records of some the world’s largest asset managers found that BlackRock voted against climate-focused resolutions 80% of the time. As Morningstar noted: “Elsewhere among the top five (asset managers), support for climate change proposals showed some meaningful increases.” But not at BlackRock. So there’s an undeniable “not walking the talk” quality to Fink’s message.

A positive influence

On the other hand, if investors and advisors take Responsible Investing (RI) more seriously because of what Larry Fink says, and if that helps them get in the game in a bigger way, then that’s of real value to every RI practitioner. Thinking of Fink’s influence this way also gets us away from habitually challenging BlackRock on its failure to live up to the standards set by its CEO. Instead of saying “BlackRock isn’t putting its money where its mouth is,” (which gets us nowhere), we can simply state, “Look, what he says is true. Now, let’s talk about how much more we’re doing on this score.”

If Larry Fink gives us a stronger foundation to elevate our message, we’ll take it. Happily.