Larry Fink’s Message to CEOs: Commit to a Net Zero Economy
BlackRock CEO Larry Fink released his annual letter to CEOs Jan. 26 and set the investment firm’s 2021 agenda to hold companies accountable for reaching net zero emissions by mid-century.
Referring to the COVID-19 pandemic, Fink call 2020 “a stark reminder of our fragility.” He added that while many suggested the pandemic would take attention away from environment capital reallocations, there was instead a steep 96% increase in sustainable asset investments globally.
BlackRock investors hold climate change as their top priority, he wrote. President Joe Biden has also made the pledge for a net zero U.S. economy by 2050 and signed a number of executive orders Jan. 27 toward that goal.
Making the move to a net zero economy will not only mean addressing extreme weather events, Fink said, but also health emergencies and even racial inequities, since low-income communities will be more severely affected by climate change than wealthier ones.
Moving forward, BlackRock will use climate metrics to guide investor portfolios:
- A temperature alignment metric for its public equity and bond funds, where sufficient data is available.
- Climate considerations will be considered in capital markets assumptions.
- A “heightened-scrutiny model” in its active portfolios as a framework for managing holdings that pose significant climate risk (including flagging holdings for potential exit).
- Investment products with explicit temperature alignment goals, including products aligned to a net zero pathway.
- Stewardship to ensure that the companies it invests in are both mitigating climate risk and considering the opportunities presented by the net zero transition.
A large piece of evaluating these metrics, however, will depend upon corporate reporting. Last year, there was a 363% spike in SASB disclosures, Fink said in the letter, including BlackRock’s first. The firm also filed its first Task Force on Climate-Related Financial Disclosure.
“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,” Fink wrote. “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.”
Experienced director Christa Steele sits on the board of Brainchip Holdings in addition to private boards. She supports addressing climate change, but hopes reporting requirements and oversight accountability at the board level won't become cumbersome.
"A warning shot has been fired across the bow for managing carbon footprints," Steele says. "Corporations cannot ignore a fund manager controlling over $9 trillion dollars in the market. However, a level of reasonableness must prevail beyond the hype of climate change."
In the end, Fink wrote he is optimistic.
“I have seen how many companies are taking these challenges seriously – how they are embracing the demands of greater transparency, greater accountability to stakeholders, and better preparation for climate change,” he wrote. “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.”