Fink pushes climate change policy up the corporate agenda

Blackrock CEO Larry FinkWith the value of last year’s investments in mutual funds and ETFs rising by a staggering 96% over 2019, corporate policy toward climate change was already rapidly moving up many board agendas. After Blackrock CEO Larry Fink’s annual letter to investors and captains of industry was distributed today, it may have made it to the top of some of them.

The Fink yearly missive has become a keenly anticipated fixture on the corporate calendar in recent times and this year it did not disappoint. “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,” he says,  before exhorting all companies to strive towards net zero carbon emissions by 2050 and urging them to up their game both in terms of their understanding and investment in the technology required to manage carbon. He also calls for a single global disclosure standard for all companies;

“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity,” writes Fink. “Essential to this transition has been the growing availability and affordability of sustainable investment options. Not long ago, building a climate-aware portfolio was a painstaking process, available only to the largest investors. But the creation of sustainable index investments has enabled a massive acceleration of capital towards companies better prepared to address climate risk.

“Today we are on the cusp of another transformation. Better technology and data are enabling asset managers to offer customized index portfolios to a much broader group of people – another capability once reserved for the largest investors. As more and more investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further. And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company’s stock…..

“There is no company whose business model won’t be profoundly affected by the transition to a net zero economy,” Fink warns. And, 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.”