Week of 17 January 2022
“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?” Larry Fink’s words to CEOs
Our key takeaway: Larry Fink, who has a little bit of leverage in the field (as CEO of the world’s largest asset manager!) calls on companies to take stock of the radical transformation that a transition to a net zero world will entail, and position themselves to transform their business today. In his words: “will you go the way of the dodo, or will you be a phoenix?”
Larry Fink, CEO of BlackRock – the world’s largest asset manager (over $10tn in assets under management) – issued his letter to CEOs around the world: ‘The Power of Capitalism’:
- Stakeholder capitalism is not about politics, it is not ‘woke’: stakeholder capitalism is capitalism: Fink discusses the foundation of stakeholder capitalism as including having a clear sense of purpose; consistent values; and, recognizing the importance of engaging with and delivering for their key stakeholders. Fink notes that “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke. 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.” The letter further states that “[o]ur conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.” To this end, BlackRock is launching a Center for Stakeholder Capitalism, to help companies “learn about how a company’s relationship with stakeholders impacts long-term value.”
- “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?”: Fink underscores that “[m]ost stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.” Fink notes that “every sector will be transformed by new, sustainable technology”, with the auto industry currently at the leading edge of this transformation. “I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt, regardless of what industry they are in.” Fink states that: “[o]ur question to [incumbent] companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?”
- The way forward is the creation of a green economy that is fair and just: Fink states that: “[w]e focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing.” Fink acknowledges that “[t]he transition to net zero is already uneven with different parts of the global economy moving at different speeds. It will not happen overnight. We need to pass through shades of brown to shades of green.” He underscores the need to “ensure that people continue to have access to reliable and affordable energy sources. This is the only way we will create a green economy that is fair and just and avoid societal discord. And any plan that focuses solely on limiting supply and fails to address demand for hydrocarbons will drive up energy prices for those who can least afford it, resulting in greater polarization around climate change and eroding progress.” In sum, “foresighted companies across a wide range of carbon intensive sectors are transforming their businesses, and their actions are a critical part of decarbonization. We believe the companies leading the transition present a vital investment opportunity for our clients and driving capital towards these phoenixes will be essential to achieving a net zero world.” Fink’s letter also delves into a number of other important themes, including the importance of voice, the new world of work and pre-requisites for access to capital.