Today, BlackRock CEO Larry Fink followed up on his statement of a year ago that business has an obligation to do more than seek shareholder returns with a letter focused on corporate responsibility for fighting climate change consistent with the Paris Accord. Now there is no excuse for the rest of us. (Disclosure: I own a few shares in Blackrock ETFs.)
BlackRock manages money in almost every conceivable configuration from hedge funds and venture funds and private investments available only to institutions and the super wealthy to ETFs available to ordinary investors. Assets under management total on the order of $ 7 trillion.
That adds up to lots of influence over lots of companies.
Your company could be one of them.
Whether or not your company is now or could become a part of a BlackRock portfolio, this move is a signal that the market—not the government—demands that business take responsibility to reverse climate change.
As Fink said in his letter, “Climate change has become a defining factor in companies’ long-term prospects.” This is not just true for his portfolio companies; it is true for all companies.
He outlines the climate change impacts in economic terms as follows:
“Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”
“Every government, company, and shareholder must confront climate change.”
He shaped this commentary with questions not answers to highlight the ambiguity created by climate change—the sort of ambiguity that creates risk that investors hate.
A key emphasis of his letter is a discussion about adopting reporting standards for sustainability. He notes that portfolio companies will be required in 2020 to report using Sustainability Accounting Standards Board (SASB) framework (which I covered in 2015).
Even your small business has an obligation to become more sustainable. This has many dimensions, but a top priority is climate change and an initial easy step is to begin purchasing carbon offsets. This simple step will give your business time to begin measuring your carbon footprint and broader social impact to find ways to make your business truly sustainable.
“This data should extend beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce, the sustainability of its supply chain, or how well it protects its customers’ data,” Fink’s letter says. “Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.”
Still, the undeniable message of the letter is climate first. The climate demands the full attention of the business community. “Every government, company, and shareholder must confront climate change.”