In Barrons this evening BlackRock CEO Larry Fink Says
Stakeholder Capitalism Is Not ‘Woke’
CEO Larry Fink used his influential annual letter to portfolio companies to defend stakeholder capitalism and warn that businesses that don’t adapt to decarbonizing the global economy risk being left behind.
“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke,’” Fink said. “It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.”
In last year's letter, he said BlackRock would begin pushing companies to disclose their plans for getting to “net zero” and eliminating greenhouse gas emissions by 2050.
He reiterated the firm’s focus on understanding how companies are adapting their businesses for massive changes under way in the economy, and said BlackRock is “asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long term economic interests of your shareholders.”
He noted: “Stakeholder capitalism is all about delivering long-term, durable returns for shareholders. And transparency around your company’s planning for a net zero world is an important element of that.”
The transition to a greener economy won’t happen overnight. “We need to pass through shades of brown to shades of green,” said Fink. “For example, to ensure continuity of affordable energy supplies during the transition, traditional fossil fuels like natural gas will play an important role both for power generation and heating in certain regions, as well as for the production of hydrogen.”
After Fink wrote two years ago that climate risk was an investment risk and that the firm would put sustainability at the heart of its investment decisions, many companies set out plans to become carbon-neutral. BlackRock had previously been criticised for not pushing hard enough on the issue.
Last spring, BlackRock – which manages about $10tn (£7.4tn) in assets – reportedly threw its weight behind a shareholder campaign to oust several directors on the board of the US oil giant ExxonMobil. The coup launched by dissident hedge fund activists at Engine No 1 replaced two Exxon board members with its own candidates to help push the oil company towards a greener strategy.
Fink predicted in this year’s letter that “the next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonise and make the energy transition affordable for all consumers”, adding that established companies should strive to do the same.
He said a “tectonic shift” had happened in recent years, with sustainable investments globally reaching $4tn.
Fink’s January letter to CEOs is widely read and has become a platform for sounding the alarm about the risk climate change poses to the markets.
It has also become something of a clarion call to business leaders and investors, given the firm’s size and power in the industry. BlackRock (ticker: BLK), the world’s largest asset manager, last week became the first public asset manager to hit $10 trillion in assets, helped by its push into sustainable investments.
Fink noted that in the two years since he wrote that climate risk is investment risk, there has been a “tectonic shift” in capital, with sustainable investments now at $4 trillion.
In the interim, he has become a powerful evangelist for sustainable investing. “The decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime,” he said. “It will also leave behind the companies that don’t adapt, regardless of what industry they are in.”
Fink stressed that the reason why BlackRock focuses on sustainability is “not because we are environmentalists, but because we are capitalists and fiduciaries to our clients.”