The Clarion Call for ESG
By Robert H. Rock

Large asset managers, notably BlackRock, Vanguard and State Street, strongly support the notion that corporations should pursue a social purpose, particularly sustainability, and they are looking to make investments that deliver value to a broad array of stakeholders. They point to studies showing consumers are more likely to base buying decisions, job-hunters more likely to seek employment, and investors more likely to invest in companies they believe to be environmentally friendly. Thus, being green is increasingly being seen as a commercial imperative.

In the institutional asset world, socially responsible investing nearly quadrupled over the past year. In response to surging investor interest as well as to more companies trumpeting their ESG metrics, mutual and exchange-traded funds are increasingly referencing ESG in their prospectus documents. Demand appears strong, especially among women and the millennial generation. But for ESG to go mainstream, it will have to overcome obstacles, including confusion about what it means, how it can be measured, and whether it’s compatible with the historic goal of most advisers and investors, namely to maximize returns.

In his 2020 letter to CEOs of the world’s largest corporations, BlackRock’s Larry Fink announced that his firm will make investment decisions with environmental sustainability as a central component of its investment strategy. With $7 trillion under management, BlackRock’s decision could not only shift its own investing policy but also fundamentally reshape modern finance and thereby the very nature of how corporate America does business.

In his letter, Fink emphasizes the clear and present danger of climate change, and thus is committing BlackRock to exiting certain investments that “present a high sustainability-related risk.” He is calling for all companies, not just energy firms, to rethink their carbon footprints and to make sustainability “the new standard.” Though some dismiss Fink’s dictum as “marketing hype,” “virtue-signaling,” and “greenwashing,” his lead has the ability to change conversations within boardrooms, putting ESG squarely and centrally on the board’s agenda. Accordingly, directors would articulate ambitious strategies around sustainability, even if it cuts into short term profits, commit to focusing on the environmental impact of their business activities, and insist that their companies measure, evaluate and disclose their environmental risks and sustainability efforts.

Directors & Boards will continue to address the intensifying drumbeat for boards of directors to go beyond profits and develop a sense of purpose that focuses on social good both within and outside the company. We are dedicated to answering the clarion call for ESG goals, strategies and benchmarks.

This issue of Directors & Boards is the last for Eve Tahmincioglu, who has served as editor-in-chief for the past three years. Under her leadership, Eve elicited governance thought leaders to weigh in on the pros and cons of the Business Roundtable’s “purpose” proclamation, the evolving character of the American corporation, and the role of directors in spreading purpose and ESG principles throughout their organizations. Eve is moving on to a senior position at the Economic Policy Institute. I thank her for revitalizing Directors & Boards, and I look forward to following the continuation of her inspired and impactful career.

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