Larry Fink Publishes 20201 Letter to CEOs
Corporate executives tend to approach Larry Fink’s annual letter with some wariness. These notorious communications hit the mainstream when the BlackRock chairman somewhat controversially called for the end to short-term guidance and corporate “near-termism” in 2016. And Mr. Fink was the first to broadly introduce the idea of a “corporate purpose” that looks beyond the bottom line and expands a company’s raison d’être to encompass much more than shareholders’ returns.
Last year, Mr. Fink turned his attention to ESG and, in his typical style, began taking the key issues head-on. Now, in his newest letter released on January 26th, he has doubled down on his no-nonsense position on sustainability, laying out the most aggressive stance on climate change taken by any investment management CEO, ever. BlackRock is holding its portfolio companies – which include some 94% of all public companies in the U.S. – to the highest climate standards out there, specifically requesting that companies:
- Report aligned with both the TCFD framework and SASB standards, a clear deviation from Mr. Fink’s traditional endorsement of single standard reporting.
- Disclose specific plans for achieving net zero greenhouse gas emissions by 2050 including details on how the business model will be compatible with a net zero economy.
- Increase stakeholder engagement around critical environmental goals and risks.
The “sustainability premium” keeps driving the stricter mandates.
BlackRock’s research illustrates that companies that articulate and act on a corporate purpose that maps back to sustainability ultimately perform much better than those that do not. During 2020, 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks. And the performance gap was even more pronounced during the first quarter downturn.
Furthermore, it is not just that broad-market ESG indexes are outpacing their non-ESG counterparts. The differential is happening within industries, from automobiles to banks to oil and gas companies. Individual companies with good ESG profiles are consistently showing up their less socially conscious peers, demonstrating that the sustainability premium1 is both real and significant.