In his annual open letter to CEOs around the world, Larry Fink, chair and CEO of BlackRock comes out in staunch defence of stakeholder capitalism, challenging companies to adapt to the changing world or risk being left behind.
Upping the ante on climate change, Fink asserts decarbonisation policies and plans are not simply about being ‘woke’, and that companies that go down the path of sustainability will be better positioned to create long term value for their investors.
In response, BlackRock is set to launch a Centre for Stakeholder Capitalism to create a forum for research, dialogue, and to debate and explore relationships between companies and their stakeholders.
BlackRock is the world’s largest investment company. It manages approximately US$10 trillion in assets including a sizeable portion of the New Zealand Superannuation Fund. Fink’s annual letters are widely read by public companies, market participants and other stakeholders to better understand the investor’s outlook and global trends.
The annual letters stimulate debate and controversy as the investor’s stance on environmental, social and governance (ESG) matters raise broader issues around the role of corporates in today’s society, who the corporate board serves, and the changing expectations of investors, regulators, customers and the broader public.
Key messages in this year’s letter include:
- Stakeholder capitalism is not political or “woke”. Focusing on mutually beneficial relationships enables capital to be efficiently allocated and value created and sustained over the long term for investors.
- Covid-19 has turbocharged an evolution in the operating environment for virtually every company. It’s changing how people work and how consumers buy. It’s creating new businesses and destroying others. It’s dramatically accelerating how technology is reshaping life and business.
- The pandemic has also deepened the erosion of trust in traditional institutions and exacerbated polarisation in many Western societies but businesses still have an opportunity to lead. Employees are increasingly looking to their employers as the most trusted, competent, and ethical sources of information.
- The old world of work has gone. Workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees. Companies which do not respond to the changing needs of their workers do so at their own peril.
- New sources of capital funding are fuelling market disruption. Never has there been more money available for new ideas to become reality. CEOs of established companies need to understand this changing landscape and the diversity of available capital if they want to stay competitive in the face of smaller, more nimble businesses.
- Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonising the global economy. Sustainable investments have now reached $4 trillion. Every company and every industry will be transformed by the transition to a net zero world. The question is: will you lead, or will you be led?
- 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. Bringing down this green premium will be essential for an orderly and just transition. What are you doing to disrupt your business? How are you preparing for and participating in the net zero transition?
- BlackRock is asking companies to set short, medium, and long-term targets for how their business model will play a role in reducing greenhouse gas emissions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of shareholders.
Larry Fink’s letter is available at blackrock.com